Asked by kylah perry on Apr 25, 2024
Verified
A note receivable is considered impaired when
A) the debtor misses an interest or principal payment
B) it is probable that the creditor will be unable to collect all amounts due
C) the market value of the note is less than its book value
D) the market value of interest exceeds the original contract interest rate
Note Receivable
A financial asset representing a promise to receive a definite amount of money at a future date, typically with interest.
Impaired
A reduction in the recoverable value of an asset below its carrying value on the balance sheet, leading to recognition of an impairment loss.
Market Value
The market value denotes the ongoing rate at which an asset or service can be traded in a marketplace.
- Evaluate the identification and quantification of impaired loans and notes receivable.
Verified Answer
HF
HUMAYOON FARAZ8 days ago
Final Answer :
B
Explanation :
A note receivable is considered impaired when it is probable that the creditor will be unable to collect all amounts due. This means that there is a higher risk that the debtor will default on their payments or become insolvent. Missing a payment is an indicator of financial difficulty but it does not automatically make the note impaired. The market value of the note and interest rate do not necessarily determine impairment, but they may impact the valuation of the note.
Learning Objectives
- Evaluate the identification and quantification of impaired loans and notes receivable.