An asset acquired using a long-term note payable always will be recorded at the face amount of the note under which scenario?
A) The note payable explicitly requires the payment of interest at a realistic interest rate.
B) The note is a noninterest-bearing note.
C) The company expects to use the asset for its entire physical life.
D) Interest on the note is not payable until the note is due.

Question

Quizplus · Accepted Answer

When an asset is acquired using a long-term note payable that requires the payment of interest at a realistic rate, the asset is recorded at the face amount of the note. This is because the interest rate reflects the time value of money, making the face amount of the note an appropriate measure of the asset's cost.

An Asset Acquired Using a Long-Term Note Payable Always Will