- CFA Exams
- CFA Exam: Level I 2021
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 28. Non-current (Long-term) Liabilities
- Subject 1. Accounting for Bond Issuance, Bond Amortization, Interest Expense, and Interest Payments
CFA Practice Question
On March 15th, 2016, Hyatt Company sold goods in exchange for a $20,000, 8% note receivable. The note required that 5 annual payments of $5,009 be made. The present value of the note (using a market rate of 9%) equaled the fair market value of the goods: $19,485. What is the total amount of interest revenue to be recorded by Hyatt over the life of this note?
B. $5,560
C. $8,000
A. $5,045
B. $5,560
C. $8,000
Correct Answer: B
The total interest revenue to be recorded over the life of the note is the difference between the total annual payments received ($25,045) and the present value of the note ($19,485) on the exchange date. The face value of the 8% note is not relevant here.
User Contributed Comments 5
| User | Comment |
|---|---|
| wldu | how to get 25,045? |
| wldu | oh, 5 X 5009 |
| sonerdem | tricky! |
| johntan1979 | This is the kind of questions that's gonna kill us in the CFA exam :( I really wonder the practicality of testing us this way... and how useful is this in reality. |
| gill15 | I agree with johntan. This isnt even a bond. When you notice notes or something I guess they can pay however they like. Here the payments are all 5009 each year unlike a bond where each year there is a small coupon payment + Principal at the end. |