NOTES PAYABLE How to get Discount on Notes Payable:

 more secured kind of borrowing

 written promises to pay Face Amount P104,000
 Sales Present Value (100,000)
 Financing Discount on P 4,000
 eg. Promisorry Note Notes Payable
 can earn an interest
Discount on Notes Payable will later on become
Measurement of Notes Payable: an Interest Expense
1. Interest Bearing Note
 Face Amount 2. JUNE 30, 2020
2. Non-Interest Bearing Note Notes Payable 104,000
 Present Value Interest Expense 4,000
Cash 104,000
ILLUSTRATION PROBLEM Discounts on 4,000
“Interest Bearing Note Issued” Notes Payable

Assume that the ABC Bank agrees to lend P100,000 on

March 1, 2020 to AWP Co. if AWP signs a P100,000,
12%, 4 month note.

What will be the entry on the following dates:

1. MARCH 1, 2020
Cash 100,000
Notes Payable 100,000

2. JUNE 30, 2020

Notes Payable 100,000
Interest Expense 4,000
Cash 104,000

[Interest Expense: 100,000 x 12% x 4/12 = 104,000]

ILLUSTRATION PROBLEM
“Non-Interest Bearing Note Issued”

Assume that the ABC Bank agrees to lend P100,000 on

March 1, 2020 to AWP Co. if AWP signs a P100,000,
12%, 4 month note.

We will assume that AWP Co, issues a P104,000 4-

month, zero interest bearing note.

1. MARCH 1, 2020
Cash ` 100,000
Discount 4,000
on Notes Payable
Notes Payable 104,000