Chapter 14, Problem 14.6BYP

To determine

Notes payable

Notes Payable is a written promise to pay a certain amount on a future date, with certain percentage of interest. Companies use to issue notes payable to meet short-term financing needs.

Note exchanged for assets or services

Sometimes a note payable or note receivable is exchanged with the assets (cash or noncash) or services. But the stated rate of interest in such notes may not indicate the market rate. The value of the assets or services thus exchanged for the note establishes the market rate.

To Discuss: The accountant’ valuation of the note and his intention to value the parts inventory acquired over the four year period of the agreement at actual prices paid, and how would your account for the initial transaction and the subsequent inventory purchases.