On August 1, 2020, a company borrowed cash and signed a 1-year interest-bearing note on which both the face value and interest are payable on August 1, 2021.How will the note payable and the related interest 1.

Question

Quizplus · Accepted Answer

The note payable and the related interest will both be recorded as a liability on the company's balance sheet until they are paid on August 1, 2021. Option A is incorrect because the company will not record the full amount of the note payable as an expense in the current period, but will instead recognize the interest expense over the course of the year. Option B is incorrect because the company cannot wait until August 1, 2021 to record both the note payable and interest, as they must be recorded on the date the note is issued. Option D is incorrect because the company cannot record the full amount of the note payable as revenue, as the company is borrowing the money and must repay it with interest.

On August 1, 2020, a Company Borrowed Cash and Signed