Exhibit 14-11 Hernandez, Ltd

question 140

Multiple Choice

Exhibit 14-11 Hernandez, Ltd.issued a three-year, $100, 000, non-interest-bearing note to a customer on January 1, 2010.Hernandez also agrees to sell inventory to the customer at reduced rates over a five-year period.Hernandez's incremental interest rate is 10%, and the present value of the note is $75, 132.
-
Refer to Exhibit 14-11.If the face value of a note is materially different from the cash sales price of the property it was exchanged for, and the note is recorded at its present value, the correct interest rate to use is the

• A)borrower's incremental rate
• B)note's stated interest rate
• C)the effective interest rate
• D)note's implied interest rate

Understand the conditions under which revenue recognition occurs, and the differences between accrual and cash basis accounting.

Recognize the importance and application of the matching principle in revenue and expense recognition.

Identify the critical events that determine the timing of net income recognition and the distinction between operating and non-operating income.

Distinguish between book value and carrying amount in the context of accounting records and financial statements.

---

Definitions:

Velocity of Money

The rate at which money is exchanged in an economy and is used to measure the activity level of economic transactions.

Nominal Gross Domestic Product

The total market value of all finished goods and services produced within a country's borders in a specific time period, evaluated at current market prices without adjusting for inflation.

Real Gross Domestic Product

The measure of the value of economic output adjusted for price changes (inflation or deflation).

Money Supply

The total budget of financial assets, including coins, cash, and contents of checking and savings accounts, ready for use within an economy at a concrete time.