LIABILITIES

LONG-TERM FINANCING
LIABILITY
LIABILITY

PROBABLE AND MEASURABLE

UNCERTAIN OBLIGATION

ü
OBLIGATIONS

ü
PROVISION COTINGENT LIABILITY
LIABILITY

Non-Current Liabilities
oBonds Payable
oMortgage Loans Payable
oLong-term notes payable
oLong-term deferred revenue
LIABILITY

Non-Current Liabilities
oordinarily used by an enterprise as a more or less permanent
means of financing to increase the earnings available to
shareholder

ASSETS= LIABILITIES + EQUITY

LIABILITY

FINANCING DEBT V EQUITY

ASSETS = LIABILITIES + EQUITY

INTEREST

PRINCIPAL
DIVIDENDS
LIABILITY

FINANCING DEBT V EQUITY

ASSETS= LIABILITIES + EQUITY

SHORT-TERM LONG-TERM

SPONTANEOUS
SOURCE OF FINANCING
LIABILITY

FINANCING DEBT V EQUITY

ASSETS= LIABILITIES + EQUITY

SHORT-TERM LONG-TERM

NOTES BONDS
LIABILITY
NOTES ISSUED SOLELY FOR CASH
On January 1, 2020, an entity discounted its own note of P1,000,000 at 12% for one year.

Note Payable 1,000,000 nominal interest rate 12%

Less: Discount,12% ( 120,000) effective interest rate
Proceeds 880,000

EIR= INTEREST PAID/ PROCEEDS

Cash 880,000 EIR= 120,000/880,000
Discount on Note Payable 120,000 EIR=13.64%
Note Payable 1,000,000
LIABILITY
NOTES ISSUED SOLELY FOR CASH
On January 1, 2020, an entity discounted its own note of P1,000,000 at 12% for one year.

Note Payable 1,000,000

Less: Discount,12% ( 120,000)
Proceeds 880,000

Cash 880,000
Discount on Note Payable 120,000 This is actually the interest for one year.
Note Payable 1,000,000
LIABILITY
NOTES ISSUED SOLELY FOR CASH
On Jan 1, 2020, an entity discounted its own note of P1,000,000 at 12% for one year.
Note Payable 1,000,000
Less: Discount,12% ( 120,000)
Proceeds 880,000

Jan 1 To record issuance

Cash 880,000
Discount on Note Payable 120,000
Note Payable 1,000,000
Dec 31 To record interest expense
Interest Expense 120,000
Discount on Note Payable 120,000

Dec 31 To record payment

Note Payable 1,000,000
Cash 1,000,000
LIABILITY
NOTES ISSUED SOLELY FOR CASH
On November 1, 2020, an entity discounted its own note of P1,000,000 at 12% for one year.

Note Payable 1,000,000

Less: Discount,12% ( 120,000)
Proceeds 880,000

Nov 1 If FS is prepared at Dec31

Cash 880,000
Discount on Note Payable 120,000 Note payable 1,000,000
Note Payable 1,000,000 Discount on Note payable ( 100,000)
Carrying Amount 900,000
Dec 31
Interest Expense 20,000
CURRENT
Discount on Note Payable 20,000

120,000 X2/12=20,000
LIABILITY
NOTES ISSUED SOLELY FOR CASH
PROBLEM 5-5

Note Payable 3,000,000

Less: Discount,10% (300,000)
Proceeds 2,700,000

June 1 If FS is prepared at Dec31

Cash 2,700,000
Discount on Note Payable 300,000 Note payable 3,000,000
Note Payable 3,000,000 Discount on Note payable ( 125,000)
Carrying Amount 2,875,00
Dec 31
Interest Expense 175,000
CURRENT
Discount on Note Payable 175,000

300,000 x 7/12=175,000
LIABILITY
NOTES ISSUED SOLELY FOR CASH
PROBLEM 5-5

Note Payable 3,000,000

Less: Discount,10% (300,000)
Proceeds 2,700,000

May 31
Interest Expense 125,000
Discount on Note Payable 125,000

300,000 x 5/12=125,000

May 31
Note Payable 3,000,000
Cash 3,000,0000
LIABILITY
NOTES ISSUED FOR PROPERTY (INTEREST BEARING)
On January 1, 2020, an entity acquired a equipment for P1,000,000 payable in 5 annual equal
installments every December of each year. Interest is 10% on unpaid balance. The purchase price
is the cash price for the same equipment.
If FS is prepared at Dec 31,2020
Jan 1, 2020 To record the purchase Note payable 1,000,000
Equipment 1,000,000 Payment in 2020 ( 200,000)
Note Payable 1,000,000 Carrying Amount 800,000

Dec 31,2020 To record interest and installment payment of note

Interest Expense (1MX10%) 100,000 CURRENT
Note Payable 200,000
Cash 300,000 200,000
NON-CURRENT

600,000

12/31/21
1/1/20 12/31/20 12/31/22 12/31/23 12/31/24
LIABILITY
NOTES ISSUED FOR PROPERTY (INTEREST BEARING)
On January 1, 2020, an entity acquired a equipment for P1,000,000 payable in 5 annual equal
installments every December of each year. Interest is 10% on unpaid balance. The purchase
price is the cash price for the same equipment.
If FS is prepared at Dec 31,2021

Note payable 1,000,000

Payment in 2020,2021 ( 400,000)
Carrying Amount 600,000
Dec 31,2021 To record interest and installment payment of note
Interest Expense (800KX10%) 80,000
Note Payable 200,000 CURRENT
Cash 280,000
200,000
NON-CURRENT

400,000
LIABILITY
NOTES ISSUED FOR PROPERTY (NON-INTEREST BEARING)
PROBLEM 4
If FS is prepared at Dec31
May 1, 2020 To record the purchase
Automobiles (PPE) 3,600,000 Note payable 3,924,000
Discount on Note Payable 324,000 Discount on Note payable ( 108,000)
Note Payable 3,924,000 Carrying Amount 3,816,000

3,924,000/1.09 The note is a current obligation

Dec 31 To record interest expense

Interest Expense 216,000
Discount on Note Payable 216,000

324,000X 8/12
LIABILITY
NOTES ISSUED FOR PROPERTY (NON-INTEREST BEARING)
April 30 To record interest expense
Interest Expense 108,000
Discount on Note Payable 108,000
324,000X 4/12

April 30 To record settlement of the note

Note Payable 3,924,000
Cash 3,924,000
END