The annual report of McGregor Manufacturing showed the following in the 2014 balance sheet:

Footnote information:
The fair value of the notes receivable was estimated by discounting the future cash flows using current rates available to similar borrowers under similar circumstances.
All notes receivable bear interest at 5% to 12% and require future principal payments of approximately $547,000 in 2015,$3,742,000 in 2016,$1,015,000 in 2017,$683,000 in 2018,$661,000 in 2019,and $25,353,000 thereafter.The current portion of these long-term notes is included in other receivables in the consolidated balance sheets.
Required:
1.Estimate the average term of the notes and the interest rates at which these notes were issued by customers of McGregor.
2.Why would the interest rates vary so much?
3.Are the stated rate and the prevailing market rate of interest similar or quite different at the date of issue?

Question

The annual report of McGregor Manufacturing showed the following in the 2014 balance sheet:
  
Footnote information:
The fair value of the notes receivable was estimated by discounting the future cash flows using current rates available to similar borrowers under similar circumstances.
All notes receivable bear interest at 5% to 12% and require future principal payments of approximately $547,000 in 2015,$3,742,000 in 2016,$1,015,000 in 2017,$683,000 in 2018,$661,000 in 2019,and $25,353,000 thereafter.The current portion of these long-term notes is included in other receivables in the consolidated balance sheets.
Required:
1.Estimate the average term of the notes and the interest rates at which these notes were issued by customers of McGregor.
2.Why would the interest rates vary so much?
3.Are the stated rate and the prevailing market rate of interest similar or quite different at the date of issue?

Quizplus · Accepted Answer

The Answer of The annual report of McGregor Manufacturing showed the following in the 2014 balance sheet:
  
Footnote information:
The fair value of the notes receivable was estimated by discounting the future cash flows using current rates available to similar borrowers under similar circumstances.
All notes receivable bear interest at 5% to 12% and require future principal payments of approximately $547,000 in 2015,$3,742,000 in 2016,$1,015,000 in 2017,$683,000 in 2018,$661,000 in 2019,and $25,353,000 thereafter.The current portion of these long-term notes is included in other receivables in the consolidated balance sheets.
Required:
1.Estimate the average term of the notes and the interest rates at which these notes were issued by customers of McGregor.
2.Why would the interest rates vary so much?
3.Are the stated rate and the prevailing market rate of interest similar or quite different at the date of issue?

The Annual Report of McGregor Manufacturing Showed the Following in the 2014