The interest expense recognized on a noninterest-bearing note is calculated using the:
A)face rate of interest
B)market rate of interest
C)both b and d are correct
D)prime rate of interest

Question

Quizplus · Accepted Answer

The interest expense recognized on a noninterest-bearing note is calculated using the market rate of interest, which is the prevailing rate at the date of the note. Since the note does not explicitly state the interest rate, the market rate is used to approximate the true interest rate.

The Interest Expense Recognized on a Noninterest-Bearing Note Is Calculated