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Why should use effective interest rate in notes receivable

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Reference no: EM132958827

In the Initial Measurement of Notes Receivable present value prevailing market rate of interest, it was said that notes receivable shall be measured initially at . The present value is the sum of all future cash flows using the for similar notes. The prevailing market rate of interest is actually the effective interest rate.

Problem 1: What does it mean by prevailing market rate of interest and effective interest rate?

Problem 2: Also, why should we use effective interest rate in Notes Receivable?

Problem 3: Explain this sentence, "The present value is the sum of all future cash flows using the prevailing market rate of interest for similar notes."

Reference no: EM132958827

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