in a(n) bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.

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08-11-2022
Business

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in a(n) bearing note, interest is deducted from the face amount of the loan to determine the cash proceeds available to the borrower at the time of loan.

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SanofarAfrin SanofarAfrin · Answer 1 · 2022-11-12T22:44:42-05:00

When calculating the cash value of a noninterest bearing note, interest is subtracted from the loan's face amount.

How do you calculate the effective interest rate on a note that doesn't pay interest?

Accounting for a note that doesn't pay interest

Determine the note's discounted present value using the current market interest rate.

To calculate the amount of interest income, multiply the market rate of interest by the note's present value.

A noninterest bearing note's present value would be calculated using the?

Using the present value formula, PV = FV / (1 + i%)n, where FV denotes future value, in this example $8000, i% denotes the interest rate, say 10%, and n is the term in years, in this case one year, the present value of the non-interest bearing note payable is determined.

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