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    Lesson8 - Notes Payable

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    Cirelle Faye Silva
    This document provides an overview of notes payable accounting. It defines a promissory note and outlines the initial and subsequent measurement of notes payable. The initial measurement is at fair value less transaction costs or fair value only. Subsequent measurement is at amortized cost or fair value through profit or loss. The document also discusses the fair value option and accounting for interest-bearing and non-interest bearing notes payable issued for cash or property. Sample problems demonstrate accounting for short and long-term notes with varying interest rates.

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    Lesson8 - Notes Payable

    Uploaded by

    Cirelle Faye Silva
    26 views13 pages
    This document provides an overview of notes payable accounting. It defines a promissory note and outlines the initial and subsequent measurement of notes payable. The initial measurement is at fair value less transaction costs or fair value only. Subsequent measurement is at amortized cost or fair value through profit or loss. The document also discusses the fair value option and accounting for interest-bearing and non-interest bearing notes payable issued for cash or property. Sample problems demonstrate accounting for short and long-term notes with varying interest rates.

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    Lesson8_ Notes Payable (1)

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    This document provides an overview of notes payable accounting. It defines a promissory note and outlines the initial and subsequent measurement of notes payable. The initial measurement is at fair value less transaction costs or fair value only. Subsequent measurement is at amortized cost or fair value through profit or loss. The document also discusses the fair value option and accounting for interest-bearing and non-interest bearing notes payable issued for cash or property. Sample problems demonstrate accounting for short and long-term notes with varying interest rates.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    26 views13 pages

    Lesson8 - Notes Payable

    Uploaded by

    Cirelle Faye Silva
    This document provides an overview of notes payable accounting. It defines a promissory note and outlines the initial and subsequent measurement of notes payable. The initial measurement is at fair value less transaction costs or fair value only. Subsequent measurement is at amortized cost or fair value through profit or loss. The document also discusses the fair value option and accounting for interest-bearing and non-interest bearing notes payable issued for cash or property. Sample problems demonstrate accounting for short and long-term notes with varying interest rates.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 13

    Notes Payable

    Lesson 8
    Technical Knowledge
    1. To define a promissory note
    2. To know the initial measurement of note payable.
    3. To understand the subsequent measurement of note payable at
    amortized cost.
    4. To understand the fair value option of measuring note payable.
    5. To know the accounting for note payable issued solely for cash,
    interest-bearing note payable and noninterest -bearing note payable
    issued for property.
    Definition
    -a promissory note is a financial instrument, in which one party called the
    maker or issuer promises in writing to pay the sum certain of money to the
    other party called the payee either in demand of the latter or at a fixed or
    determinable future time.
    Measurement
    INITIAL: fair value less transaction cost or FV only

    SUBSEQUENT: amortized cost or FVPL


    1.Short-term Interest-bearing (NR=ER)
    Problem 8-1. Ontario Company, a natural energy supplier, borrowed P8M cash on
    November 1, 2021 to fund a geological survey. The loan was granted by United Bank
    under a short-term credit line. Ontario Company issued a 9-month, 12% promissory
    note with interest payable at maturity. The fiscal period is the calendar year.
    1.Short-term Interest-bearing (NR≠ER)
    Problem 8-4. On November 1, 2021, supported by the credit line, Rose company issued
    P20M of commercial paper on a nine-month note. Interest was discounted at issuance
    at a 6% discount rate. Rose company paid the the commercial paper at maturity.
    1. Short-term NonInterest-bearing (NR≠ER)
    Problem 8-2. On October 1, 2021, Home Company issued to Security Bank a P6M,
    8-month noninterest-bearing note. The note payable was discounted by the bank at
    12%.
    2.a Long-term Interest-bearing (NR=ER)
    Problem 8-5. On January 1, 2021, West Company acquired a tract of land for P1M. The
    entity paid P100,000 down and signed a two-year promissory note for the balance plus
    10% interest compounded annually. The note matures on January 1, 2023.
    2.b Long-term Interest-bearing (NR≠ER)
    On January 1, 2028, Pepper Company issued a P3M, 12% promissory note for a
    machinery purchased. The interest is payable every December 31 while the principal is
    payable after 3 years. Market rate of interest is 10%. PV factor of 1 using 10% for 3
    periods is 0.7513 while the PV factor of ordinary annuity of 1 using 10% for 3 periods id
    2.4869
    2.c.1 Long-term NonInterest-bearing (NR≠ER)
    Problem 8-6. On January 1, 2021, North Company acquired a machinery with cash price
    of P750,000 for P1,000,000. The entity paid of 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.
    2.c.2 Long-term NonInterest-bearing (NR≠ER)
    Problem 8-7. On January 1, 2021, South Company acquired a building for P5M. The
    entity paid P500,000 down and signed a 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
    annuity of 1 for three periods is 2.4018
    Thank you!

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