A company bought an asset and signed a four-year non-interest-bearing note for the full amount.If the note were recorded at its face value, which of the following statements would be true?
A)Only liabilities will be understated.
B)Only liabilities will be overstated.
C)Both assets and liabilities will be overstated.
D)Both assets and liabilities will be understated.

Question

Quizplus · Accepted Answer

When a non-interest-bearing note is recorded at its face value, both the asset acquired and the liability (the note) are recorded at an amount that is higher than their present value. This overstates both the asset and the liability on the balance sheet.

A Company Bought an Asset and Signed a Four-Year Non-Interest-Bearing