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Chapter 14: Q15Q (page 753)

How is the present value of a non-interest-bearing note computed?

Short Answer

Expert verified

The present value of the non-interest-bearing note is calculated using the following formula:

Presentvalue=Futurevalue×1(1+r)n

Step by step solution

01

Definition of Non-Interest-Bearing Note

The non-interest-bearing note can be defined as the, not withno coupon rate. Such notes are issued at a lower price than their par value and are redeemed at par.

02

Calculation of present value of the non-interest-bearing note

The present value of the non-interest-bearing note is calculated by multiplying the present value factor with the future value of the note. The future value of the note means the face value of the note. r is the interest rate applicable on a similar note, and n refers to the period of the note.

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Most popular questions from this chapter

What are some forms of off-balance-sheet financing?

What is meant by “accounting symmetry” between the entries recorded by the debtor and creditor in a troubled-debt restructuring involving a modification of terms? In what ways is the accounting for troubled-debt restructurings non-symmetrical?

On January 1, Patterson Inc. issued \(5,000,000, 9% bonds for \)4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report bonds payable of:

(a) \(4,725,500. (c) \)258,050.

(b) \(4,714,500. (d) \)4,745,000

(a) In a troubled-debt situation, why might the creditor grant concessions to the debtor?

Question: What is the required method of amortizing discount and premium on bonds payable? Explain the procedures.
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