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    Note Payable and Debt Restructuring

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    louvelle
    This document discusses accounting for note payables and debt restructuring. It provides examples of entries for: 1) Issuing a note payable for cash where the proceeds are recorded at present value using a discount rate. 2) Recording an interest-bearing note payable at present value of future payments. 3) Recording a non-interest bearing note payable for equipment where present value is assumed to be the cash price.

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    Note Payable and Debt Restructuring

    Uploaded by

    louvelle
    22 views2 pages
    This document discusses accounting for note payables and debt restructuring. It provides examples of entries for: 1) Issuing a note payable for cash where the proceeds are recorded at present value using a discount rate. 2) Recording an interest-bearing note payable at present value of future payments. 3) Recording a non-interest bearing note payable for equipment where present value is assumed to be the cash price.

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    This document discusses accounting for note payables and debt restructuring. It provides examples of entries for: 1) Issuing a note payable for cash where the proceeds are recorded at present value using a discount rate. 2) Recording an interest-bearing note payable at present value of future payments. 3) Recording a non-interest bearing note payable for equipment where present value is assumed to be the cash price.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    22 views2 pages

    Note Payable and Debt Restructuring

    Uploaded by

    louvelle
    This document discusses accounting for note payables and debt restructuring. It provides examples of entries for: 1) Issuing a note payable for cash where the proceeds are recorded at present value using a discount rate. 2) Recording an interest-bearing note payable at present value of future payments. 3) Recording a non-interest bearing note payable for equipment where present value is assumed to be the cash price.

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    Note Payable and Debt Restructuring

    1. Note Payable is initially measured at fair value which is equal to the present value and
    subsequently measured at amortized cost
    2. When the note is issued solely for cash, the cash proceed is the present value using a discount
    rate. Straight line method of depreciation is used. Using 12%, the entry is:
    Cash 880,000
    Discount on N/P 120,000
    Note payable 1,000,000

    3. If a promissory note is interest-bearing, the purchase price is the present value. Example: an
    entity acquired equipment for 1,000,000 payable in 5 annual equal installments every dec.31 of
    each year. Interest is 10percent on the unpaid balance.

    1/1/11:
    Equipment 1M
    Note payable 1M
    12/31 Interest Expense 100T
    Note payable 200T
    Cash 300T

    12/31/12:
    Interest Expense 80T
    Note Payable 200T
    Cash 280T

    4. When a noninterest-bearing note is issued for a property with cash price, the cash price is
    assumed to be the present value of the note issued. Entity acquired an equipment with a cash
    price of 350T for 500T, 100T down and the balance payable in 4 equal annual installments:

    1/1 Equipment 350T 12/31 NP 100T


    Discount on N/P 150T Cash 100T
    Cash 100T
    N/P 400T Interest Exp 60T
    Disc. On NP 60T
    * Bond outstanding method is used to amortize discount.
    * the cash paid is not added to the cost of equipment since the 350T cash value includes already
    the 100T cash paid. So the 400T note payable applies to the 250T portion of the equipment.
    Thus, 400-250=150T discount on note payable.
    5. If there is no cash price in a noninterest bearing note, present value/cash price is determined
    by multiplying the annual installment by the present value factor. Entity acquired an equipment
    for 1M payable in 5 annual installments on every dec.31 of each year. Using 10percent
    prevailing market interest, the entry is:

    1/1 equipment 758,160 12/31 NP 200T


    Discount on N/P 241,840 Cash 200T
    Note payable 1,000,000 Interest exp 75,816
    Disc.on NP 75,816
    *Effective interest method is used.

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