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    Chapter 2 - Notes Payable

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    Ira Charisse Burlaos
    The document discusses notes payable and loan payable accounting. It defines key terms like stated interest rate and effective interest rate. It also covers the initial measurement of financial liabilities and notes payable. Origination fees on loans payable are deducted from the carrying amount and amortized using the effective interest method.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Chapter 2 - Notes Payable

    Uploaded by

    Ira Charisse Burlaos
    311 views10 pages
    The document discusses notes payable and loan payable accounting. It defines key terms like stated interest rate and effective interest rate. It also covers the initial measurement of financial liabilities and notes payable. Origination fees on loans payable are deducted from the carrying amount and amortized using the effective interest method.

    Original Title

    CHAPTER-2_NOTES-PAYABLE

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    The document discusses notes payable and loan payable accounting. It defines key terms like stated interest rate and effective interest rate. It also covers the initial measurement of financial liabilities and notes payable. Origination fees on loans payable are deducted from the carrying amount and amortized using the effective interest method.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    311 views10 pages

    Chapter 2 - Notes Payable

    Uploaded by

    Ira Charisse Burlaos
    The document discusses notes payable and loan payable accounting. It defines key terms like stated interest rate and effective interest rate. It also covers the initial measurement of financial liabilities and notes payable. Origination fees on loans payable are deducted from the carrying amount and amortized using the effective interest method.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 10

    (Intermediate Accounting 2)

    LECTURE AID

    2021

    ZEUS VERNON B. MILLAN


    Chapter 2 Notes Payable

    Learning Competencies

    • State the initial and subsequent


    measurement of notes and loans payable.
    • Apply present value factors properly.
    • Prepare amortization tables.
    • Explain the accounting for origination fees
    on loans payable.

    INTERMEDIATE ACCTG 2 (by:


    MILLAN)
    Notes payable

    • Notes payable are obligations supported by


    debtor promissory notes.
    • The accounting for notes payable is similar to the
    accounting for notes receivable.

    INTERMEDIATE ACCTG 2 (by:


    MILLAN)
    Initial measurement of financial liabilities
    • Financial liabilities are initially recognized at fair value minus
    transaction costs that are directly attributable to the issuance,
    except for financial liabilities at FVPL whose transaction costs are
    expensed immediately.
    • Fair value is the price that would be received to sell an asset or paid
    to transfer a liability in an orderly transaction between market
    participants at the measurement date.
    • Transaction costs are incremental costs that are directly attributable
    to the issue of a financial liability. An incremental cost is one that
    would not have been incurred if the entity had not issued the
    financial instrument.
    INTERMEDIATE ACCTG 2 (by:
    MILLAN)
    • Short-term notes payable are initially measured either at
    face amount or present value.
    • Long-term notes payable with reasonable interest rate are
    initially recognized at face amount.
    • Long-term noninterest-bearing notes payable and Long-term
    notes payable with unreasonable interest rate are initially
    measured at present value.
    • If the cash price equivalent of the noncash consideration
    received in exchange for the note is available, the note payable
    is initially measured at this amount.

    INTERMEDIATE ACCTG 2 (by:


    MILLAN)
    Stated interest rate vs. Effective interest rate

    • Stated interest rate (nominal rate, coupon rate, or face


    rate) is the rate appearing on the face of an interest-
    bearing note.
    • Effective interest rate (imputed rate of interest, current
    market rate or yield rate) is the rate used in present
    value computations.

    INTERMEDIATE ACCTG 2 (by:


    MILLAN)
    Loan payable

    • Origination fees are deducted from the carrying


    amount of the loan and subsequently amortized using
    the effective interest method.
    • Origination fees are included in the calculation of the
    effective interest rate over the expected term of the
    loan payable, meaning, on transaction date, the
    origination fees are treated as adjustment to the
    effective interest rate.

    INTERMEDIATE ACCTG 2 (by:


    MILLAN)
    APPLICATION OF
    CONCEPTS
    PROBLEM 6: FOR CLASSROOM DISCUSSION

    INTERMEDIATE ACCTG 2 (by: MILLAN)


     QUESTIONS????
     REACTIONS!!!!!

    INTERMEDIATE ACCTG 2 (by: MILLAN)


    END
    INTERMEDIATE ACCTG 2 (by: MILLAN)

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