Discount on Notes Payable is treated as a reduction of notes payable on the balance sheet.

Question

Quizplus · Accepted Answer

When a company issues notes payable at a discount, it means that the amount it receives is less than the face value of the notes. The discount is calculated by determining the present value of the notes at a market interest rate, and it represents the interest that the company will effectively pay over the life of the notes. The discount is recorded as a liability on the balance sheet, and it is amortized over the life of the notes as an interest expense. As the discount is applied to reduce the balance of the notes payable, it is treated as a reduction of the liability on the balance sheet. Therefore, the answer is true.

Discount on Notes Payable Is Treated as a Reduction of Notes