أنشئ حسابًا أو سجّل الدخول للانضمام إلى مجتمعك المهني.
Initially: On receipt of cash on issuance of loan notes.
Dr Cash79,838
Dr Amortization discount20,162
Cr Long term Liability100,000
Its PV will be79383
Interest Payable :6720 (20,162 x1/3 )
Dr Interest exp6720
Cr Amortization discount6720
note: This entry takes place over the period of that investment each year.
1: At issuance Date:
DR Cash79383
DR Discount on notes payable20617
CR Long Term Liability - Notes Payable100000
2: Interest Recognizing:
Interest will be calculated by multiplying Carrying amount of notes times effective rate, the results will be6351 &6859 &7407 for each year subsequently.
Accounting Entry for the Interest :
DR Interest Expenses
CR Discount on notes payable
3: At maturity Date :
DR Long term debits - notes payable100000
CR Cash100000
If a non interest bearing note is a bond, the issuer is selling the bond at a deep discount and committing to pay back the face amount of the bond on its maturity date. This approach allows the issuer to avoid making periodic interest payments on the bond. Instead, all cash payment obligations by the issuer are concentrated at the maturity date of the bond.
The holder of a non interest bearing note should recognize imputed interest income on the instrument. This requires the following steps:
The same approach is used by the issuer of the note, except that interest expense is recorded, and the value of a note payable liability account is gradually increased until such time as the debt is paid off at its face value.
I AGREEE WITH ALL ANSWERS ^_^