If You Make an Interest-Free Loan of $10,000 to a Friend

question 64

Multiple Choice

If you make an interest-free loan of $10,000 to a friend to help her get started in her new business and the interest rate charged by banks on similarly-risky loans is 15%,then the opportunity cost of the loan is equal to

• A) $10,000.
• B) $1,500.
• C) $11,500.
• D) $0.
• E) $8,500.

Calculate and defer gross profit on inter-entity inventory sales and recognize it appropriately in subsequent periods.

Determine the fair value of investments and adjustments for excess cost over book value attributable to specific intangible assets and goodwill.

Analyze transactions to identify significant influence over an investee and the accounting implications.

Account for changes in ownership percentages in an investee and understand the impact on the investment account.

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Definitions:

Stock Index Futures

Futures contracts to buy or sell a specific stock index at a predetermined price on a specified future date, used for hedging or speculating on the direction of the stock market.

Multiplier

A concept in economics referring to the factor by which a change in investment, government spending, or other economic activity results in a larger change in the gross domestic product (GDP).

Dollars

A unit of currency used in the United States and other countries, symbolized as $.

S&P 500 Index

A market-capitalization-weighted index of the 500 largest U.S. publicly traded companies and is often used as a benchmark for the overall stock market.