Final answer:
The difference between the face amount of a zero-interest bearing note and the cash proceeds is correctly recorded as a discount on notes payable, which is true. This discount is amortized over the life of the note as an interest expense. Present value calculations play a crucial role in the trading price of bonds based on market interest rates.
Step-by-step explanation:
When a company issues a zero-interest bearing note, the statement that the difference between the face amount of the note and the cash proceeds is most appropriately recorded as a discount on notes payable is true. This discount represents the cost of financing and is amortized to interest expense over the life of the note. Financially, this discount on notes payable is analogous to the interest paid on a typical interest-bearing note.
The present value calculation is crucial in determining the price at which bonds will trade. If market interest rates are higher than the bond's coupon rate, the bond's selling price will fall below its face value. Conversely, if market rates are lower, the bond will sell for more. Bonds demonstrate the importance of present discounted value in financial decision making as investors' willingness to buy or sell depends on their expectations of future benefits in relation to current market interest rates.