Zero Interest Bearing Note Example

A company that issues a zero-interest-bearing note doesn't make periodic interest payments. Instead, the company agrees to receive less cash than the note's face value. The difference between the amount of money received and the amount of money the issuer of the note is promising to pay is called the discount. The discount represents implicit interest on the note.
To calculate the amount of cash the issuer will receive for the note, discount the face value of the note (the amount the issuer is promising to pay) to its present value. The discount rate used to perform the calculation is the implicit interest rate for the note.
At the end of each period, the issuer of the note would multiply the note's carrying value by the implicit interest rate to calculate the interest expense for that period.
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[@vh4478]

Thank you so much! This explained to me in a way that made complete sense. I am so thankful to have found this!

[@MyFinancialFocus]

Watching these videos for fun :)

[@maryzu664]

This is awesome! Thank you!!! ☺

[@user-rx8qq8sk9ydv1ce5ib]

Thanks a lot. What is the GAAP Standard number for the above accounting. Like which ASC ? Thx

[@johnq3543]

Thank you

[@Dino-in5sg]

and this is an adjusting entry right

[@TheBensMeister]

How would you book a 3 year software service contract where 100% is due at the time of purchase, but 2/3 is financed and paid annually with 1/3 at the beginning of both years 2 and 3 with 0% interest on the contract?
Would you still book the 66% note at value, discount on note, the prepaid software at present value and credit cash for the 1/3 like I have below, or just book the prepaid at full value, the loan at 66% and skip the the discount portion?
Prepaid Software 95,000
Discount on Note 5,000
Cash 33,333
Note Payable 66,667
At Year 2
Note Payable 33,333
Int Expense 3500
Cash 33,333
Discount on Note 3,500
At Year 3
Note Payable 33,333
Int Expense 1500
Cash 33,333
Discount on Note 1,500
With Prepaid Software being expensed at $2,638.89 per month over 36 months.
Would you book it differently (I made up the interest\discount amount, just pretend they are properly computed TVM)

[@baharafendi4194]

I have one assaignment can help me