Carter & Cash has just acquired equipment by issuing a $500,000,2 year,non-interest-bearing note.The equipment was recorded on the books at $500,000.What is the result of this?

Question

Quizplus · Accepted Answer

When a company acquires equipment by issuing a non-interest-bearing note, the equipment and note payable should be recorded at the present value of the note, not its face value. Recording at face value overstates both net income (because interest expense is understated) and liabilities (since the liability is recorded at its full, not discounted, amount).

Carter & Cash Has Just Acquired Equipment by Issuing a $500,000,2