If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate.

Question

Quizplus · Accepted Answer

The stated interest rate on a long-term note payable is not necessarily the effective rate because the effective rate (also known as the market rate or yield) takes into account the overall financial cost of borrowing, including how the note is issued (at par, premium, or discount) and other transaction costs, which may differ from the stated rate.

If a Long-Term Note Payable Has a Stated Interest Rate