Question

A note payable was issued in payment for services received. The services had a fair value less than the face amount of the note payable. The note payable has no stated interest rate. How should the note payable be presented in the statement of financial position?Your Answer:a. At the face amount.b. At the face amount with a separate deferred asset for the discount calculated at the imputed interest rate.c. At the face amount with a separate deferred credit for the discount calculated at the imputed interest rate.d. At the face amount minus a discount calculated at the imputed interest rate

Answer 1

The correct answer is D

Step-by-step explanation:

When the note is exchanged against the services, property or goods, then the interest rate will be determined by the parties in the transaction of arm length which is presumed to be fair.

When the note is issued with no stated rate, then the transaction should be reported at the determinable of

• Fair value of services or goods received.
• The note market value.

The fair value of the service received is lower than the face amount of the note, a discount on the note is acknowledged. The imputed interest rate on the note is the one which equated the future payments present value on the note.