Final answer:
The asset acquired with a noninterest-bearing note payable for $225,000 is reported at fair value, not its face value, considering the time value of money. Over time, the asset's book value is constant unless subjected to depreciation or impairments, while the associated liability increases annually due to the recognition of the implied interest.
Step-by-step explanation:
When an asset is acquired using a noninterest-bearing note payable for $225,000 due in three years, the asset is not recorded at its face value of $225,000. Instead, the asset should be reported at its present value, which is the current worth of the payments to be made in the future accounting for the time value of money. Since the note is noninterest-bearing, the implied interest has to be calculated, discounting the future payment to its present value to determine the asset's acquisition cost.
Therefore, the correct statement is likely to be that the asset is reported at fair value. Over time, the value of the asset on the balance sheet typically does not change unless depreciation or amortization is applicable, or an impairment is recognized. However, the liability (note payable) will increase over time as the interest cost is recognized, bringing the carrying amount up to the $225,000 when the note is finally paid.