Notes Payable (True or False)

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A company can exclude a short-term note payable from current liabilities if it intends to refinance the obligation and has an unconditional right to defer settlement of the obligation for at least 12 months following the due date.

False

A short-term note payable can be excluded from current liabilities if the company intends to refinance it on a long-term basis

False

After initial recognition of note payable, it shall be measured at amortized cost using the straight-line method.

False

Discount on Note Payable of a long-term noninterest bearing note is subject to amortization using the straight-line method.

False

Short-term note payable is classified as current liability unless an agreement to refinance is completed before the financial statements are issued

False

The account Discount on Notes Payable is added to the face amount of the notes payable.

False

The account Discount on Notes Payable is recognized from transactions in exchange of both long-term interest and noninterestbearing notes payable

False

The amortization of discount on notes payable will decrease interest expense in the income statement.

False

The amortization of discount on notes payable will decrease the carrying amount of long-term noninterest bearing notes payable

False

The amortized cost of discount on notes payable is equal to the nominal interest expense.

False

There is no interest expense to be recognized for long-term noninterest bearing note.

False

To determine the present value of long-term noninterest bearing note payable, both its principal and interest payments must be translated to their respective present value.

False

When a property or noncash asset is acquired by issuing a noninterest bearing promissory note, the property or noncash asset is recorded at the purchase price without consideration to the time value of money.

False

A note issued on a short-term basis in exchange of cash and discounted at 10% requires recognition of Discount on Note Payable.

True

A zero-interest-bearing note payable that is issued at a discount will result in any interest expense being recognized

True

If there was no established cash price for the noncash asset received in exchange of long-term noninterest bearing note, the cost of the noncash asset received is equal to down payment made on the date of exchange and the present value of the long-term note payable.

True

Initially, note payable shall be measured at fair value which is equal to the present value or discounted value.

True

The account Discount on Notes Payable is a contra liability account.

True

The amortization of discount of notes payable requires a debit entry to Interest Expense.

True

The difference between the cash price of the noncash asset received and the face of the noninterest bearing note issued represents the imputed interest.

True

The effective interest method is used in the amortization of Discount on Notes Payable.

True

The face amount of long-term noninterest bearing notes payable requires presentation in the statement of financial position at its present value.

True

The imputed interest from the issuance of noninterest-bearing note in exchange of property is based on the sound philosophy that no lender would part away with his money or property interest-free.

True

The interest expense for income statement purposes for long-term noninterest bearing note is equal to effective interest expense.

True

The purchase price of noncash asset in exchange of interest-bearing promissory note is assumed to be the present value of the note and therefore, the fair value of the property.

True

When a noninterest-bearing note is issued for property, the property is recorded at the cash price of the property.

True

When a note is issued solely for cash, the present value of the note is equal to the cash proceeds

True


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