A non-interest-bearing obligation
A)requires recognition of interest expense over the life of the obligation.
B)is an example of an installment obligation.
C)requires collateral.
D)is free of interest expense.

Question

Quizplus · Accepted Answer

A non-interest-bearing obligation typically involves discounting the future payment back to its present value, which then gets accreted over the life of the obligation as interest expense. This means that even though no explicit interest payments are made, interest expense is recognized over time as the book value of the obligation increases towards its future value.

A Non-Interest-Bearing Obligation