001 Notes Payable

Question 1

What is the net note balance for a note issued at a discount?

Answer 1

Face value less unamortized discount.

Question 2

When is the straight-line method not allowed for notes payable accounting?

Answer 2

Installment notes, and when the yield and stated rates are materially different.

Question 3

List the two different methods of recording a note for which a discount or premium is recorded.

Answer 3

1. Gross Method 2. Net Method

Question 4

List the two different methods of amortizing a discount or premium on a note.

Answer 4

1. Effective interest method 2. Straight-line method

Question 5

What causes a discount on a note?

Answer 5

when yield rate is greater than stated rate.

Question 6

What causes a premium on a note?

Answer 6

When yield rate is ess than stated rate.

Question 7

Define “discount on note” for a note exchanged for cash and other privileges.

Answer 7

The amount of noninterest revenue recognized over the term of the note.

Question 8

What is the principal amount of a noninterest-bearing note?

Answer 8

Present value of the face amount discounted at the yield rate on the note.

Question 9

What is the total interest expense recognized on a noninterest-bearing note?

Answer 9

Total payments less amount borrowed.

Question 10

Is a noninterest-bearing note issued at a premium or discount?

Answer 10

Discount.

Question 11

What is the amount borrowed on an installment note issued at discount?

Answer 11

Product of the periodic payment and the annuity factor for the term of the note and the yield rate on the note.

Question 12

What is the amount of the periodic payment for an installment note issued at discount?

Answer 12

Face value divided by the annuity factor for the term of the note and the stated rate on the note.

Question 13

What is the amount of interest recognized for a period on an installment note (one requiring equal periodic payments that include both principal and interest)?

Answer 13

Product of effective rate at date of issuing the note and the principal balance at the beginning of the period.

Question 14

What is the amount of interest recognized for a period on a note calling for a face amount due at maturity, issued with an effective interest rate not equal to the stated rate?

Answer 14

Product of effective rate at date of issuing the note and the principal balance at the beginning of the period.

Question 15

What is the reported amount of a note calling for a face amount due at maturity, issued with an effective interest rate not equal to the stated rate?

Answer 15

Present value of remaining cash flows discounted at the effective rate.

Question 16

What is the distinction between notes payable and accounts payable?

Answer 16

1 Time period is usually extended; 2 Notes have an interest element.

Question 17

Define “interest-bearing note payable.”

Answer 17

A note in which the interest element is explicitly stated.