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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What is a non-interest-bearing note? How does accounting for a short-term non-interest-bearing note differ from a short-term interest-bearing note?

To determine

State the meaning of non-interest-bearing note, explain the manner in which the accounting for short-term non-interest bearing note differ from a short-term interest-bearing note.

Explanation

Note receivable:

Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or, borrower to the lender or creditor. Notes receivable is an asset of a business.

  • A note that does not require an interest rate is known as non-interest-bearing note is; the maturity value is recorded as the “face value” for a “short-term non-interest-bearing note” and it comprises both principal and implicit interest. So, the note is primarily stated at its maturity value, the total interest to be made over the life of the note is recorded as “Discount on Note Receivable”, and Sales is credited for the amount of difference...

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