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:d. At the face amount minus a discount calculated at the imputed interest rate
Notes issued or received in exchange for goods or services that do not bear interest at a fair rate are reported at an amount equal to the fair value of the note, the fair value of the goods or services, or the present value of the note using a fair interest rate, whichever is more readily determinable. Regardless of which method is used to value the note, the difference between the recorded amount and the face value is considered a discount and the applicable interest rate, referred to as the imputed rate, is the rate at which the present value of the face amount of the note will be equal to the amount at which it is originally recorded. As a result, the note is reported at its face amount minus a discount calculated at the imputed interest rate.