When a long-term non-interest-bearing note is exchanged solely for cash, the difference between the cash received and the face value of the note is recorded as
A)interest expense
B)premium on notes payable
C)discount on notes payable
D)interest payable

Question

Quizplus · Accepted Answer

When a long-term non-interest-bearing note is exchanged solely for cash, it means that the note's face value is higher than the cash received. Therefore, the difference between the cash received and the face value is recorded as a discount on notes payable. This is because the borrower received less cash than the face value of the note they are liable to pay in full.

When a Long-Term Non-Interest-Bearing Note Is Exchanged Solely for Cash