A discount on a noninterest-bearing note payable is classified in the balance sheet as:
A) An asset.
B) A component of shareholders' equity.
C) A contingent liability.
D) A contra liability.

Question

Quizplus · Accepted Answer

A discount on a noninterest-bearing note payable is classified as a contra liability because it represents a reduction of the face value of the note. As the note is noninterest-bearing, there is no interest expense associated with it. Therefore, the discount is recorded as a contra liability to reduce the carrying value of the note.

A Discount on a Noninterest-Bearing Note Payable Is Classified in the Balance