Scribd
Upload
1K views2 pages

Chapter 7 - Notes Payable

The document discusses notes payable, including: - Notes payable are unconditional written promises to pay a fixed sum on demand or on a specified date. - Notes payable are initially measured at fair value less transaction costs, or at fair value if designated as measured at fair value through profit or loss. - Subsequently, notes payable are measured at amortized cost using the effective interest method, or at fair value if designated as measured at fair value through profit or loss. - The document provides examples of accounting for notes payable issued for cash, property, or with/without interest. It includes self-check problems to test understanding.

Uploaded by

clariza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
1K views2 pages

Chapter 7 - Notes Payable

The document discusses notes payable, including: - Notes payable are unconditional written promises to pay a fixed sum on demand or on a specified date. - Notes payable are initially measured at fair value less transaction costs, or at fair value if designated as measured at fair value through profit or loss. - Subsequently, notes payable are measured at amortized cost using the effective interest method, or at fair value if designated as measured at fair value through profit or loss. - The document provides examples of accounting for notes payable issued for cash, property, or with/without interest. It includes self-check problems to test understanding.

Uploaded by

clariza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

INTERMEDIATE ACCOUNTING 2 MODULE

Chapter 7: The asset is equal to the present value of the note payable
NOTES PAYABLE using the effective interest method.

Objectives:  Fair Value Option of measuring Note Payable


The learner should be able: Gain or loss on financial liability designated at FVPL shall be
 To define a promissory note. accounted for as follows:
 To know the initial measurement of note payable.
 To understand the subsequent measurement of note payable a. The change in fair value attributable to the credit risk is
at amortized cost. recognized in OCI.
 To understand the fair value option of measuring note b. The remaining amount of the change in fair value is
payable. recognized
 To know the accounting for note payable issued solely for In profit or loss.
cash, interest-bearing note payable and non-interest bearing
note payable issued for property.
The amounts recognized in OCI resulting from change in fair value
attributable to credit risk shall not be subsequently transferred to
Start of Discussion
profit or loss. However, cumulative gain or loss recognized may be
transferred within the equity or retained earnings.
 NOTE PAYABLE
A promissory note is an unconditional promise in writing made There is no amortization of discount or premium on note payable.
by one person to another, signed by the maker, engaging to pay The interest expense is based on the nominal or stated interest rate.
on demand or at a fixed or determinable future time a sum The transaction cost is expensed immediately.
certain in money to order or to bearer.
-End of Discussion-
 INITIAL MEASUREMENT OF NOTE PAYABLE
 Note payable not designated at FVPL
SELF-CHECK TEST:
Fair Value of Note Payable
Problem 1:
Less: Transaction costs
On September 1, 2020, Trinoma Entertainment borrowed
 Note Payable designated irrevocably at FVPL P24,000,000 cash to fund a new Fun Park. The loan was granted by
Present Value of the future cash payments Solid Bank under a noncommited short-term line of credit
arrangement.
 SUBSEQUENT MEASUREMENT OF NOTE PAYABLE
a. At amortized cost using the effective interest method Trinoma issued a 9-month, 12% promissory note. Interest was
b. At FVPL, if the note payable is designated irrevocably as payable at maturity. The fiscal period is the calendar year.
measured at fair value through profit or loss.
Required:
Amortized Cost of Note Payable 1. Prepare the journal entry for the issuance of the note by
Initial Measurement Trinoma.
- Principal repayment 2. Prepare the appropriate adjusting entry for the note on
±Amortization of Discount or Premium December 31, 2020.
3. Prepare the journal entry for the payment of the note at
maturity.
 ISSUANCE OF NOTE PAYABLE

A. Note issued solely for cash Problem 2:


When a note is issued for cash, the present value is equal to On January 1, 2020, West Company acquired a tract of land for
the cash proceeds. P1,000,000. The entity paid P100,000 down and signed a two-year
promissory note for the balance plus 10% interest compounded
B. Interest bearing note issued for Property annually. The note matures on January 1, 2022.
When a property or noncash asset is acquired by issuing a
promissory note which is interest bearing, the property or Required:
asset is recorded at the purchase price. Prepare the journal entries to record:
1. Purchase of land on January 1, 2020.
C. Noninterest bearing note issued for property 2. Accrued interest on December 31, 2020.
When a non-interest bearing note is issued for propery, the 3. Accrued interest on December 31, 2021.
4. Full payment of the note payable note on January 1, 2022.
property is recorded at the cash price of the property. It is
assumed to be the present value of th note issued.

D. No Cash Price
INTERMEDIATE ACCOUNTING 2 MODULE

You might also like