Module 8: Note Payable
Answer Key
1. C. Proceeds received
2. B Amortized as interest expense over the life of the note
3. B. More than the stated discount rate of 10%
4. A. Bears a stated rate of interest which is realistic.
5. D. Fair value minus transaction cost
6. C. Either amortized cost or fair value through profit or loss
7. D. Fair value
8. B. at initial recognition, an entity may irrevocably designate the note payable as a fair value
9. D. Amortizing the discount on note payable gradually decreases the carrying amount of
liability over the life of the note.
10. A. The present value of note payable must be approximately using an imputed interest rate
11. D. All of these are considered in measuring the present value of the note payable
12. D. The stated interest rate is equal to the market rate
13. B. Direct deduction from the face amount of note
14. B. If fair value is unavailable, the note payable should be recorded at present value
discounted at the market rate of interest
15. D. fair value minus transaction cost
PROBLEM SOLVING
1. A 2,450,000 gain
Note Payable 5,000,000
Net Proceeds 2,550,000
Gain in change in fair value 2,450,000
2. D 71,000
Jan 1 - Oct 31, 2023 (400k x 12% x 10/12) 40,000
Feb 1 - Jul 31, 2023 (1M x 12% x 6/12) 60,000
May 1 - Dec 31, 2023 (700k x 12% x 8/12) 56,000
Total interest Expense- 2023 156,000
Recorded interest expense (85,000)
Understatement of Interest Expense 71,000
3. B 2,520,000
Present Value (700k x 3.60) 2,520,000
4. C 302,400
Interest Expense (2,520,000 x 12%) 302,400
5. B 48,000
Note Payable, 09/22 1,800,000
Less: Payment - 09/23 600,000
Balance - 09/23 1,200,000
Accrued Interest Payable 09/23 (1,200,000 x 4/12) 48,000
6. A 300,000
Interest Expense (3,000,000 x 10%) 300,000
7. D 2,500,000
Carrying amount of Note Payable 2,500,000
8. A 500,000 gain
3,000,000 - 2,500,000 = 500,000
9. C 20,250
Interest Expense (900,000 x 9% x 3/12) 20,250
10. A 704,700
Note Payable 900,000
Payment 195,300
Carrying Amount 704,700
11. D 1,391,200
Note Payable 2,400,000
Present Value 1,992,000
Discount on Note Payable 408,000
Amortization for 2023 (1,992,000 x 10%) 199,200
Discount on Note Payable 0 12/31/23 208,800
Note Payable - 01/01/23 2,400,000
Annual Payment (800,000)
Note Payable - 12/31/23 1,600,000
Discount on Note Payable (208,800)
Carrying Amount 1,391,200
11. D 165,000
1,200,000
(400,000)
800,000
Interest Paid 01/09 (1,200,000 X 15% X 9/12) 135,000
Interest Accrued 10/12 (800,000 x 15% x 3/12) 30,000
Interest Expense 165,000
12. A 1,160,000
Accrued Interest 03/2022 - 02/2023 (5M X12%) 600,000
Accrued Interest 03/2023 - 12/2023 (5M + 600k X 12% X 10/12) 560,000
Total Accrued Interest Payable 12/31/2023 1,160,000
13. B 414,000
Interest Expense (12% x 3,450,000) 414,000
14. C 471,200
PV of Note Payable (100,000 x 5.712) 571,200
Payment, 12/2023 (100,000)
Balance 12/2023 471,200
15. D 180,000
Note Payable, 10/2023 2,400,000
Payment on October 2022 (800,000)
Balance, 10/2022 1,600,000
Accrued Interest Payable from
October 2022 - June 2023 (1,600,000 x 10% x 9/12) 180,000
