Intermediate Accounting 2

Chapter Two: Notes Payables

Notes Payables - are obligations supported by
promissory notes. Its accounting is similar to notes
receivable.
*Notes payable are in writing, while accounts
payable aren’t.
*When face value is higher than cash proceeds, they
are discounts.

Measurements
Initial Measurement – fair value minus transaction
cost.
Four classifications of notes payable:
a. Short-term Payable
b. Long-term Payable with reasonable interest
rate
c. Long-term Non-Interest Bearing
d. Long-term Payable with an unreasonable
interest rate
Short-term – matures within 1 year
Long-term – matures beyond 1 year

Short Term Payable

 Its fair value may be equal to its face amount.
Unless if the transaction contains a significant
financing component, the fair value would be
then equal to its present value.
Type of Note Initial Subsequent
Payable Measurement Measurement
Short term
Long Term
with
reasonable
interest rate
Long Term
Non-Interest
Bearing
Long Term
with
unreasonable
interest rate