Free FASB 14 Research Paper Sample

Dear Wie Company

As explained, I have noted that your Company trades in golf equipments and the business has been in operation for two years. It is encouraging to hear that presently the Company can comfortably finance its activities. Furthermore, your plan to acquire some used products through contracting a zero-interest-bearing note worth $50,000 after a maturity period of 5 years is a strategic move. However, I understand that you are facing problem in establishing exchange price for the recording equipment. I am hopeful that this research paper will guide you accordingly enabling you make informed decisions.
Initially, I would like you to note that FASB 835-30-25-5 section provides relevant literature regarding the zero-bearing interest note. The literature guides that, in case of issuance of a long-term zero bearing bond, the net proceeds are essentially less than face amount. The provision further guides that an effective interest rate of such a bond should be calculated based on its market value upon issuance. Furthermore, it is worthwhile noting that a bond provided specifically for cash that is the same as its face value is assumed to earn the defined rate of interest. However, in some instances, contracting parties may exchange unstated privileges or rights such as in a situation where a firm offers a note discount (FASB 835-30-25-6). This can result in a situation of a zero-interest note in which the effective interest rate will apparently differ from the stated rate. For instance, a firm may lend supplying firm some cash that need to be repaid in five years— a case in which there is no stated interest. In this case, the difference between the cash loaned and the present value of the receivable is viewed as an addition to the cost of goods bought during the contract term (FASB 835-30-25-6).
The established price that mainly presents the price for a cash sale of property or service acquired is principally used to establish the present value of a note. In cases where notes trade in an open market, an evidence of their present value is signified by the market interest and their market value. These strategies are mainly used to establish the present value of the note (835-30-25).
Wie should acknowledge that the procedure of establishing a note’s present value in cases where an established exchange price is not determinable, and there is no ready market for the note is more tasking. In establishing the present value of a note in such a case, an applicable interest rate is estimated that may be different from the stated rate (FASB 835-30-25). The procedure is often regarded as imputation while the resulting rate is often described as the imputed interest rate. The insignificant difference between the applicable current rate and the stated rate may often prompt a material effect on the financial statements especially in a situation where the face amount of the note is large.
The Company should also be aware that Discount or premium established from the present value is not essentially an asset or liability that can be separated from the note that generates it. In this view, I recommend that the discount or premium be recorded on the balance sheet as the deduction from or addition to the face figure of the note.
In addition, the cash transactions presenting the discounts or premiums need to be categorized as deferred charge or credit. The details of the note should comprise the effective interest rate. Furthermore, the face amount should be indicated in the financial statements. According to FASB guidelines, discount or premium should be accounted for interest in the statement of income while the issue costs should be noted on the balance sheet as deferred charges. With this knowledge, I am confident that the Company will be in the position of adopting strategic moves while executing its plans. I am grateful for your interesting in approaching me for guidance and feel free to contact me any time for any clarification.
Thank you