Question

All of the following are true regarding long-term notes payable except:



a.The note’s carrying value at any time equals its face value minus any unamortized discount or plus any unamortized premium.


b.Notes payable are usually issued by a single lender.


c.The market rate of interest at the time of issuance determines the periodic cash payment amount.


d.Over the life of the note, the interest expense allocated to each period is computed by multiplying the market rate by the beginning-of-period balance.


e.The equal total payments pattern has changing amounts of both interest and principal.

Answer 1

The correct answer is:

c. The market rate of interest at the time of issuance determines the periodic cash payment amount.

Answer 2

A long-term note is a promissory note that reflects a loan from a bank or other creditor, option c. is not a long-term note.

What does it mean to have a long-term note?

A long-term note is a promissory note that reflects a loan from a bank or other creditor, but a bond is a more complicated financial instrument that typically entails debt to a number of creditors.

Option c. The periodic cash payment amount is determined by the market rate of interest at the time of issuance.

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