CHAPTER 8 NOTE PAYABLE TECHNICAL KNOWLEDGE To define a promissory note. To know the initial measurement of note payable. To understand the subsequent measurement of note payable at amortized cost. To understand the fair value option of measuring note payable. To know the accounting for note payable issued solely for cash, interest-bearing note payable and noninterest-bearing note payable issued for property. 259 Scanned with CamScannerNOTE PAYABLE peal orenise a note isan ancient A promissory : s to another se terminable fulure times ‘made by one person Iopay on demand or at a fixed 0” deer iy to order oF ‘sum certain in mon Initial measurement of note payable \ vaoh 5.1, provides that a note payable no PERS 9, paragraph 6.1.1, provides ttt OP fogs shall ke In other words,.transaction costs are included in the measurement of note payable. However, if the note payable is irrevocal fair value Uhrough profit or loss, the transa expensed immediately. ; The is equal to the bly designated at ction costs are Subsequent measurement of note payable PFRS 9, paragraph 5.3.1, provides that after initial recognition, a note payable shall be measured: a At amortized cost using the effective intevest method b. At fair value through profit o loss ifthe iote payable is designated irrevocably as measured at fair value ‘rough profit or los. neal Amortized cost of note payable ‘The amortized cost of note payable is the amount at whi fhe note payable is measured ina, = UTE AE HICH 4. Minus principal repayment b. Plus or minus the eamlative atc ncrest metodo any dere ba amount and present value of the note payable. Actually, the difference between the face amount and present value is either discount or ale i discount or premium on the issue of Nole 260 note isstied Solely for cash yen a note is issued Mal to the cash proce jilustration solely for eds €28h, the present value is November 1, 2020, an enti 33,000 at 13% for one yen UNE its own noe of Note payable {ess Discount (12% x 1,000,000) Netproceeds Journal entry Cash 80,000 Discount on note payable a Note payable Aone ‘Actually, the discount on note payable of P120,000is the ‘Mlerest expense for one year. ee ‘Thus, on December 31, 2020, after 2 months, the discount on note payable is amortized as interest expense. Interestexpense 20.000 Discount on note payable (120,000 2/12) ‘The straight line method is used in amortizing the discount ‘on note payable for simplicity. Besides, the note payable has only a term of one year. Ifa statement of financial position is prepared on December 31, 2020, the note payable isclassified and reported as current ability. 20,000 Note payable 1,000,000 Discount on note payable (100.000) 900,000, Carrying amount int on note payable is a direct jount of the note payable, the "amortized Observe that the discow deduction from the face am ‘The carrying amount of P900,000 is actually cost" of the note payable. 261 Scanned with CamScannerInterest bearing note issued for property ‘or noneash asset is acquired bY issuing r romeatnterest bearing, the Property op urchase price «purchase price is reasonably assumed t0 Be the present aa ae ered therefore, the fai value of the property cause the note owed is otrest beating When a property promissory note whi asset is recorded at the p! Illustration On January 1, 2020, an entity acquired an equipment for 1,000,000 payable in 5 annual equal installments every December 31 of each year. Interest is 10% on the unpaid balance, Journal entries 2020 Jan, 1 Equipment 1,000,000 Note payable 1,000,000 Dec. 81 Interest expense (10%x 1,000,000) 100,000 ‘Note payable 200,000 Cash. 300,000 Paymentof the first installment and the interest for 2020, 2021 Dee, 31 Interest expense (10%x800,000) 80,000 Nat pavabe 200,000 Cas 280,000 Payment for second installment and interest for 2021, 262 Noninterest bearing note issued for property noninterest beatin When a nonin’ & note is issued for property, the property 18 recorded at the cash price of the property” te cash price 1 astumed tobe the present value ofthe note 188 pe difference between the cash price and the face of the ‘Tho imputed interest is based on the sound philosophy that no lender would part away with his money or property interest-free Mlustration n January 1, 2020, an entity acquired an equipment with a cash price of P350,000 for P500,000, P100,000 down and the balance payable in 4 equal annual installments. Journal entries for 2020 dan 1 Egionot soso BRR separate et ro 100,000 ete apale neo mo ea seo00 men ofanalitaiest. 21. Interest emente ann Banepa eho 263 Scanned with CamScannerTable of amortization ° Amortizat Year Né Fraction ion Year Note payable 400.000 ano 0,000 rane no 45,000 oo 2no 30,000 Seman 10 15.00 concen 150,000 Note payable represents the amount outstanding every year. ‘The note was issued on January 1, 2020 and the first payment was made on December 31, 2020. ‘Thus, for 2019, the note payable outstanding is P400,000, Fraction is developed from the note payable outstanding every year, Amortization is the amount of discount multiplied by the fraction developed. ‘Thus, for 2020, P150,000 times 4/10 equals P60,000. 264 nother HIUSEEBHION— no Gash yi, jn danuaty 1, 2020, an e 98 90,000 payable in 5 ey Ficember 31 of each year, tity acy Nal annual gah, eaupment for val installments on every erve that there is no agreed intere Orsilable forthe equipment, stand no cash price is euch a case, the cost of the equi Jresent valu ofthe P200000 anneal ment eal tthe Pen appropriate rate of 10%, he rate of 20% 8 cssumed tobe the reveling market rat of interest ne present value of an ordinary annuity of 1 for Toiis 3.7908, lary annuity of 1 for 5 years at ‘Therefore, the present value of five P200,000 installments is P758,160, computed by multiplying P200,000 by the present value factor of 3.7908. iil 1,000 by th Journal entries for 2020 Jan, 1 Equipment 758,160 Discounton note payable 2aneio ‘Note payable 1,000,000 Dee, 31 Note payable 200,000 Cash 200,000 First installment payment, 31 Interestexpense 5816 Diseount on note payablo 75,816 ‘Amortization of the disoount ‘on note payable for 2020. ‘The “effective interest’ method is followed in the amortization of the discount. 265 Scanned with CamScannerTable of amortization Date Payment Interest Principal Present valu, 758,100 Jan. 1, 2020 rate 124184 «633.976 Dee: 91; 2020 200,000 y3e602 497 ang 31 ot oon Doc a1 zoe 20000 woags Sica " Y 822 Desa; goa Soon ioe ih Dee. 81, 2024 200,000 Payment represents the annual installment. Interest is equal to the preceding present value multiplied by the implied interest rate. Thus, for 2020, P758,160 times 10% equals P75,816. Principal is the portion of the payment after deducting interest representing principal. ‘Thus, on December 31, 2020, P200,000 minus the interest of 75,816 equals P124,184. Present value is the balance of the preceding present value after deducting the principal payment. ‘Thus, on December 81, 2020, P758,160 minus the principal payment of P124,184 equals P633,976. On December 31, 2020, the current portion ofthe note payable would be reported as eurrent liability. Note payable 200,000 Discount on note payable 63,398) Carrying amount amortized cost 136,602 ‘The noncurrent portion of the note payable would be reported as noneurrent liability es Note payable ome Discount on note payable ( 202.676) Carrying amount amortized cost 497.374 266 son yer Noninterest Beating note payable jump sum jaainterest bearing note for the balance wining iered son January 1, 2023, eee re was no established cash price for the equipin ggent value of 1 for 3 periods is 761g, Computation ywnpayment a te 1 castofequipment Imputed interest Face value of note 900,000, Present value of note 66.170 Imputed interest 223,890 Journal entries 1. To record the purchase of equipment on January 1, 2020: Equipment ‘76,170 Discount on note payable 23,830 Cash 100,000 Note payable ‘900,000, 2. To record the interest expense for 2020: ersiT Interestexpense an Discount on note payable tized as interest ‘The discount on note payable is amortize expense using the “effective interest” method. 3. ‘To record the fll payment of the note on January 1, 2028: Note payable 00000 000 Cash 267 Scanned with CamScannerTable of amortization Discount on fe payable Present va Date Interestexpense note payable Present vale 1/1/2020 a 12ys1i2g0 6.617 zag 74379 81st 818,166 12/31 s1sid ; 900,000 Interest expense is equal to the preceding present value multiplied by the implied interest rate. ‘Thus, for 2020, P676,170 times 10% equals P67,617. Discount on note payable is the balance minus the interest expense every year. Thus, oa December 31, 2020, P223,890 minus the interest of 67,617 equals P156,213, Present value ic the preceding balance plus the interest expense every year, ‘Thus, on December $1, 1020, P676,170 plus the interest of 67,617 equals P743,787, 268 gai vie ontion OF messuring note payabl le ides that a R59. PATABEADN 4.2.2, poy it ‘ocably a yable may be irr t initial rece ve payable may be inrey {initial recognition, se through Profit Or Los, lesignated as at fair + ol PERS liability designated vial ed at fa bs athe change in fair value attri Credit risk is the risk thet the isuer of ‘would cause a financial loss to the : to discharge the obligation, the liability other party by failing Croit risk does not include market isk such a interes Sink, currency risk and price isk ee metas interest b The remaining amount of the change in fair value is _ recognized in profit or loss, Application Guidance B5.7.9 provides that amount recognized in other comprehensive income resulting from thange in fair value attributable to edit risk shall not be subsequently transferred to profit or loss. However, the cumulative gain or loss recognized may be transferred within equity or retained earnings. Under the fair value option, any transaction cost is recognized as outright expense. There is no amortization of discount and premium on note payable. As a matter of fact, interest expense is recognized using the nominal or stated interest rate. 269 Scanned with CamScannerMustration. On January 1, 2020, an entity borrowed from a bank P4,000,000 on a 12% Suyear interest bearing note. 'P4,000,000 which is the fair value of the ‘The entity received ‘cost of P100,000 was note on January 1, 2020. Transaction paid by the entity. ‘The fair value of the note payable was P8,500,000 on, December 31, 2020. ‘The entity has elected irrevocably the fair value option for measuring the note payable. ‘The change in fair value comprised P50,000 attributable to credit risk and 450,000 attributable to interest risk. Journal entries for 2020 Jen, 1 Cash 4,000,000 Note payable 4,000,000 1 ‘Transaction ost 100,000 Cash 100,000, Dec. $1 Interest expence (12%x 4,000,000) 480,000 Cash 480,000 31 Notepayable 500,000 Gain from change in fair value 450,000 Gain from eredit risk - OCI 30,000 Carrying amount 4,000,000, Fair value~December 31,2020 3,500,000, Decrease in fair value of liability gain 500,000 ‘The gain from change in fair value is recognized in Profit or loss. ‘The gain from credit risk is recognized in other coniprehensive income. 270 Ql yESTIONS 4, What is « promissory note? g, Explain the initial and subsequent measurement of note * payable 4. Explain the amortized cost of note payable, 4. What is the present value of a note payable? a. Note issued solely for cash & Noninterest bong mee {oe property 5. Explain the fair value option of measuring the note payable 271 Scanned with CamScannerPROBLEMS Problem 8-1 (IAA) Ontario Company, a natural encrss 000,00 ash ene ‘toy United Bank under survey. The loan " steer eg tea mar. he period is the calendar year. ed D to fund a geolagica) Required: 1. Prepare the journal entry for the issuance of the note ayable by Ontario Company. a 2, Prepare the appropriate adjueting entry for the note ayable on December 31, 2020 3 Prepare the journal entry for the payment of the note payable at maturity. Problem 8-2 (IAA) On October Home Company issued to Security Bank P6,000,000, $-month, noninterest-bearing note. The note, Payable was discounted by the bank at 12%, Required: 1. Prepare the appropriate journal entry by Home Company. to record the issuance of the note 2 Prepare the adjusting entry on December 31, 2020, 3. Present the note payable on December 31, 2020 4. Prepare the journal entry to record the discount amortization and payment ofthe note payable on June 1, 21, date of maturity. 5. Suppose the nota hed beon structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Home Company, 6. Prepare the appropriate journal entry on December 31, 2020 to accrue interest expense on the note described in requirement 5, 7. Prepare the journal ent payable described in maturity, ry to record the payment of note Tequirement 5 on the date of 272 ablem&-3 (IAA) eptember 1, 2020, Trinoma py 0m “90,000 cash to fund a new putettainment borrows poi.00r by Solid Bank undes ge Fun he loan was gredit arFAngement. Tringma wemitted short-term line of iggory note, Interest was pay/sued a 9-mont rosea oessioncdan see PaVable ap yaa csmenEh, 12% word is y. The fiscal ired: peat are the journal entry for Poe esi 1 the issuance of the note by aire the 2) © adjust a December 1, 2038 ‘adjusting entey for the note on are the journal entry for 4 Prepare he payment ofthe note at problem 8-4 (IAA) pany provided the followin ; ae Conny Ea ving selected transactions 2020 Feb, 1 Negotiated a roy Son aro SR CiaE Set arent wih Eh renewed annually upon ‘The amount available under the credit is 30,000,000 at the prime bank ata frit il 1 Arranged a 8-month bank loan of P12,000,000 wit pl Second Bank under the line of eredit ussecmere Interest at the prime rate of 8% was paveble wt maturity July 1 Paid the 8% note at maturity Nov. 1 Supported by the eredit line, Rose Company issued P20,000,000 of commercial paper on 2 nine-month note, Interest was discounted at issuance at a 6% discount rate, Dec. 31 Recorded any necessary adjusting entry, 2021 ‘Aug. 1 Paid the commercial paper at maturity. Required: Prepare the appropriate journal entries through the maturity of each liability. 2738, Scanned with CamScannerProblem$5 (ACP) ve acquired a tract of On January 1, 2020, West Company acat lang for P1,000,006. The ety paid P100000 down and signed » P1.000,000. The ent Pete alaace pls 10% interest compound i ses on January 1, 202, compounded annually. The note matur Required: Prepare journal entries to record: 1. Purchase of land on January 1, 2020 2. Accrued interest on December 31, 2020 3, Accrued interest on December 81, 2021 4. Full payment of the note on January 1, 2022 Problem $-6 (ACP) On January 1, 2020, North Company acquired a machinery with cash price of P750,000 for P1,000,000. ‘The entity paid P200,000 and signed a noninterest bearing promissory note for the balance which is payable in 4 equal installments every December 31 of each year. Required: Prepare journal entries for 2020. Problem 8-7 (IAA) On January 1, 2020, South Company acquired a building for 5,000,000. The entity paid P500,000 down and signed 2 noninterest bearing note for the balance which is payable in 3 equal annual installments every December 31 of each year. The prevailing interest rate for a note of this type is 12%. The present value of an ordinary annul or three periods is 2.4018. eee Required: Prepare journal entries to record purchase of building 08 Tantary 1, 2020, rt inten 2020 nd interes expense fer 2026.7 wo” December 1 274 problem 8-8 (IAA) january 1, 2020, Manila Company a on 7960,000. The entity paid Pr seq cfu 8 tract ofland interest bearing note for the ajo 088 and signed a noni 1, 2023. Which is due on january tre was no established exchange ‘Thefote had no ready market, Te the dis evpe of note Was 12%. The BES periods is 7118. Required: prepare journal entries to reeotd purchas»oflondon Janua ote on January 1, 2028, Problem 8-9 (AICPA Adapted) tt On January 1, 2020, Heritage Company has a note payable to bank in the amount P2,800,000, ‘Transactions during 2020 and other infrmation relating to liabilities are: 4. Principal amount of the nate payable to banks 2,800,000 and bears a 12% interest. The note is dated April 1, 2019 andis payable in four equal annual installments beginning April 1, 2020. The first principal and interest payment wwas made on April 1, 2020 b. Onduly 1, 2020, the entity issued for P1,714,000. P2,000.000 face amount note to a wealthy shareholder. The note was dated July 1, 2020 and matures on July 1, 2022, No elit interest rate is stated in the note and the entire face amour of the note is payable at maturity date. Required: { Propare journal entries for 2020. pute the total current liabilities 1 ® Determine the interest expense '° 215 Scanned with CamScanner« Problem 8-10 (IAA) achine and agreed to pay oer Sec Conany veh ama m0 Eee 2 Foy ine eal me get ate ti tirana 12% ary anny 1 881256 fe inary ritan ordinary annuity of ‘The present value of an o "The present value of 1 at periods is 9,60, The future amount Tat 12% for five periods is 6.85. 12% for five periods is 0.567. orted as note payable 1. What amount should be reported as note Payable if financial statements were prepare ‘a. 1,700,000 2,160,000 8,000,000 dl, 3,810,000 2, What is the interest expense for the first year? Problem 8-11 (AICPA Adapted) ‘Mann Company reported a 10% note payable of P3,600,000, fon June 30, 2020, The note is dated October 1, 2018 and payable in three equal annual payments of P1,200,000 plus interest, ‘The first interest and principal payment was made on October 1, 2019. On June 30, 2020, what amount should be reported as accrued interest payable for this note? a, 270,000 180,000 90,000 d, 60,000 276 problem &12 (AICPA Adapeoay 31, 2020, By December 31, 2020, Bart Company on pel Company in exchange PUA & machine Fowe requiring CHBhE Payments of Popp gatitetent bearing first payment Was made on ire due annually on rosea 31, 2020 and the ‘the other 1 date of issuance, the preva i if note was 11%, ype fan ordinary anni of1 01% rtp Patan annuity of Tinadvanceat pe ty, NG Fate of interest for this 5.6 ori2 ‘on December 31, 2020, what is th oo veagablel © carrying amount of the 400 200 200 400 a Ld b 1,02 104 a (94 Problem 8-13 (AICPA Adapted) Atte beginning of eurrent yer, Paes Company borrowed 7,600,000 fom a major eustomeFevideneed yn sonntereat ing noe due in three yeas ‘The entity agreed to supply the customer's inventory needs, for the loan period at an amount lower than market pric. i imputed interest rate for this type of loan, the At the e note is P2,550,000 at the date of issuance, present value of t What amount of interest expense should be reported in the income statement for the current year? a. 432,000 b, 350,000 © 306,000 a 0 217 Scanned with CamScannerrd) re 8-14 (AICPA Adapt’ sepa in exhance 6 rth The pote, made at usual ge Fogerty, at the annual rate interest rate is 8%, The compound interest factor AP due tne sonths at 898.284 “At what amount should the note payable be reported at yeur-end? a 1,030,000 ‘1,000,000 ‘965,200 944,000 Problem 8-15 (AICPA Adapted) sn September 1, 2019, Pine Company issued a note payable anger aia a wd Pé00.000: On this date, the prime rat was 11% Pe b, 48,000 3 8 Problem 8-16 (AICPA Adapted) On March 1, 2019, Fine Company borrowed P1,000,000 and signed a 2-year note bearing interest. at. 12% per annum compounded annually. Interest is payable in full at maturity fon February 28, 2021 What amount should be reported as neers sst payable What amount shouldbe eep ycerued interest pay a. 100,000 b. 120,000 282,000 a. 240,000 278 problem 8:17 (IAA) ganuary 1, 2020, Solemn Com, on ‘There wa ‘pany sold land to Gk pany. 8 10 establishe lory come "tablished market price for the ory fase! fhe first .enote has no ready market. The prevail he present value of a P2,400,000 not Shnual installments of P800,000 at 1,989,600. te payable in three equal 8 10% rate of interest is What is the carrying amount of the note payable on December 31, 20207 ¥e note payable 1,989,600 2,126,400 1,388,560 a. 2,400,000 Problem 8-18 (AICPA Adapted) COndanuary 1, 2020, Basy Company reported a note payable sf P,200,000. ” ~ The note is dated October 1, 2019, bears interest at 15%, and is payable in three equal annual payments of P400,000. ‘The first interest and principal payment was made on October 1, 2020, What amount should be reported as interest expense for 20207 165,000 180,000 135,000 30,000 279 Scanned with CamScanner2 + Problem &-19 (AICPA Adapted) borrowed from the bank in ono, b Company frequently on auth iting cash. to maintain sufficient operat e, with interest ‘The loans were at a 12% interest rate, pay at maturity, The entity repaid each loan on the sched maturity date. able luled Date of Maturity Termof oan’ Amount date loan u019 500.000 108312020 year 2/1/2020 1,800,000 7/31/2020 Gmonths 5/1/2020 ‘800,000 81/2021 ‘months ‘The entity recorded interest expense when the loans are repaid. As a result, interest expense of P150,000 was recorded in 2020, 1. What amount should be reported as interest expense for 20207 If no correction is made, by what amount would interest, expense for 2020 be understated? a. 54,000 b. 62,000 ©. 64,000 d. 72,000 280 problem $20 (AICPA Adapted) on duly 1, 2020, Justine Com, 100% five-year interest-bearing nate ea 1000000 on a note. December 31, 2020, the fair y On persed to be BORE 99, AH Value of the note ia ‘The entity irrevocably elected the fair value option in measuring the note payable, fair value option i 1. What is the interest expense for 20207 a. 100,000 b. 50,000 ce. 97,500 48,750 What is the carrying amount of the note payable on December 31, 2020? ‘a. 1,000,000 b. 500,000 fe. 975,000 4. 900,000 3. What amount should be reported as gain from change in fair value of the note payable for 20207 a, 100,000 b. 75,000 ce. 25,000 a 0 281 Scanned with CamScannerProblem 8-21 (AICPA Adapted) erro 500,000 ‘On January 1, 2020, Jonathan Company borrows , 8% note due in four years. The present value of the note on fhe date of issue was P9600. ‘The entity elected ierevocably the fair value Option in ue ofthe note to 408,60, 1.’ What is the carrying amount of the note payable on December 31, 2020? 500,000 367,500 408,150 460,000 2 What amount should be reported as interest expense for 20207 . a. 40,000 b. 29,400 ©. 82,562 d. 20,000 3. What amount of gain from change in fair value of the note payable should be reported for 2020? a. 182,500 b. 172,500 fe. 91,850 d. 29,400 4. Atwhat amount should the diseount on note payable be presented on December $1, 2020? a. 132,500 b. 103,100 91,850 a. ° 282 problem 8-22 (AICPA Adapted) uary 1, 2020, Lite on Jemuaey onpany reese Pi on Sronintacot- beating nate dua ete se Fo ona naeret on uch da aa sue entity itevocably lected the far value option in ‘Reasuring the note payable ° on December 31, 2020,°the risk factors indicated that the fate of interest applicable to the borrowing was 8%. The Fresent value factors at 10% and 9% are pviactor 10%,3periods 751 PV factor9%, Speriods 772 PVifactor 10%,2periods 825 PV factor 9%, 2periods “842 PVfactor 10%, Lporiod 909 PY factor 94,1 period “917 1, What is the initial carrying amount of the note payable on January 1, 2020? 751,000 772,000 826,000 909,000 2, What is the carrying amount.of the note payable on December 31, 2020? 751,000 772,000 917,000 842,000 ym the change in fair 3. What amount of net gain or loss from 1 - Value of the note payable should be reported for 2020? 158,000 gain 158,000 loss 174,000 gain. 174,000 loss ppeP 288 Scanned with CamScannerProblem 8-28 Multiple choice (AICPA Adapted) exchange for cash, ce is equal to 1, When an entity issued a note sol the present value of the note at issuan Face amount a Face amount discounted at the prevailing interest rate Proceeds received Proceeds received discounted at the prevailing interest rate poop 2. If the present value of a note issued in exchange for a property is less than fice amount, the difference should be ‘4. Included in the eost of the asset 1h. Amortized ns interest expense over the life ofthe note ©. Amortized as interest expense over the life ofthe asset 44. Included in interest expense in the year of issuance ‘3. An entity borrowed cash from a bank and issued to the bank a short-term noninterest bearing note payable. The bank discounted the note at 10% and remitted the proceeds to the entity. The effective interest rate paid by the entity in this transaction would be 8, Equal to the stated discount rate of 10% b. More than the stated discount rate of 10% ec. Less than the stated discount rate of 10% d. Independent of the stated discount rate of 10% 4. At issuance date, the present value of a promissory note is equal to the face amount if the note a. Bears a stated rate of interest which is realistic b. Bears a stated rate of interest which is less than the porvailing market rate for similar notes, ¢. Is noninterest beating and the implicit interest rate is Joss than the prevailing market rate for similar notes. 4, Is noninterest bearing and the implicit interest rate is equal tothe prevailing market rate for similar notes. 284 : ich statement concernin wich state discount on note payable is jpcorrect Payable piscount on note payable may be deited w * ecunt ove ao we ‘aga rten entity ‘The discount on note payable is a mn b. Fhe amount note payable eduction from the The discount on note payable represents interes! dharaes space fo Bite periodate interest ‘Amortizing the discount on note payable gradually decreases the carrying amount of the lathes weet the life of the note. at the Hetty, ove ‘A note payable with no ready market is exchanged for 6M operty whose fair value is currently indeterminable. When such a transaction takes place ‘a. The present value of the note payable must be approximated using an imputed interest rate. b, The note payable should not be recorded until the fait value of the property becomes evident. ‘The entity receiving the property should estimate a value for the property, 4. Both entities involved in the transaction should negotiate a value to be assigned to the property 4. When a note payable is issued for property, the present value of the note is measured by a ‘The fair value of the property The frie value ofthe note payable © Using an imputed terest rat to ayments on the nate payable a. Alot uhese are considered in measuring the preset value of the note payable able is exchanged for property, the imed to be fair when 8. When a note pay! stated interest rate is pres a. No interoat rate is stated, b, The stated interest rate is unre’ from ay similar property. sasonable. ally different from the eash sale price for er 4. The stated interost rate is equal to he market rate 285 Scanned with CamScanner¢ determination of the th oo ould be reported as 9. The discount resulting present value of a note payable rred credit b. ee eduction from the face amount of the note c. Deferred charge te d. Addition to the fac f the no’ e amount 0 10, Which statement is correct when an entity ssaued a note payable with no stated interest yate in exchange for g depreciable asset? a. The asset should be depreciated over the term of the note payable. b. If fair value is unavailable, the note payable should be recorded at present value discounted at the market rate of interest. ' Both the note and the asset are recorded at the face amount of the note payable. d. The note payable is recorded at face amount even if the fair value of the asset is readily available. 286 Scanned with CamScanner