Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 7 - Cash and Receivables - Review and Practice - Questions - Page 362: 15


Imputed interest refers to a circumstance which is void of the appropriate interest factor. It would be the result if a process of interest rate estimation called imputation. An interest rate is imputed for notes receivables when: 1. There is no stated interest rate for the transaction. 2. The stated interest rate is unreasonable, or 3. The face value of a note is different from the market value or cash price for the debt instrument.

Work Step by Step

In imputing a suitable interest rate, consideration should be given to the initial interest rates for similar instruments of issuers with similar collateral, credit ratings, as well as restrictive covenants.
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