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Notes Receivable: Presentation

For long-term noninterest-bearing notes receivable, the amortized cost is calculated as the present value plus the amortization of the discount, which is the face value minus the unamortized unearned interest income. Interest income is calculated using the effective interest method as the present value multiplied by the interest rate. The principal payment is the annual collection minus the interest income, and the present value decreases each year by the principal payment amount.

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103 views2 pages

Notes Receivable: Presentation

For long-term noninterest-bearing notes receivable, the amortized cost is calculated as the present value plus the amortization of the discount, which is the face value minus the unamortized unearned interest income. Interest income is calculated using the effective interest method as the present value multiplied by the interest rate. The principal payment is the annual collection minus the interest income, and the present value decreases each year by the principal payment amount.

Uploaded by

Jonathan Navallo
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© © All Rights Reserved
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*For long-term noninterest-bearing notes

CHAPTER 11: receivable, the amortized cost = present value


NOTES RECEIVABLE + amortization of the discount, which is the
face value minus the unamortized unearned
Claims supported by formal promises to pay; interest income.
represent only claims from sale or service in
the ordinary course of business.
Negotiable promissory note – unconditional PRESENTATION
promise signed by the maker
Computation of interest income is made
Dishonored notes – matured but not paid; using the effective interest method.
removed from notes receivable and transferred
to accounts receivable. Interest income = present value (x) interest
rate given.
Principal payment = annual collection (-)
INITIAL MEASUREMENT interest income.

Present value – sum of all future cash Present value – preceding balance (-) annual
flows discounted using the prevailing principal payment.
market rate of interest/effective interest
Unearned interest income – face value (-)
rate for similar notes.
present value
SHORT-TERM NOTES RECEIVABLE
 Face value
 Cash flows relating to short-term notes
receivable are not discounted because
the amount of discounting is usually not
material.
LONG-TERM NOTES
 Interest bearing – measured at
face/present value upon issuance.
 Noninterest bearing – measured at
present value (discounted value of the
future cash flows using the effective
interest rate)
*The term is a misnomer because all notes
implicitly contain interest.

SUBSEQUENT MEASUREMENT
LONG-TERM NOTES
 Measured at amortized cost using the
effective interest method.
Amortized cost – amount at which n/r is
measured initially:
a) (-) principal repayment
b) (+,-) cumulative amortization of any
difference between initial carrying
amount and principal maturity amount.
c) (-) reduction for impairment or
uncollectibility

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