Intermediate Accounting (16th Edition)

Published by Wiley
ISBN 10: 1118743202
ISBN 13: 978-1-11874-320-1

Chapter 5 - Balance Sheet and Statement of Cash Flows - Review and Practice - Questions - Page 238: 20


Ideally, the notes should be reported as a long-term liability with full disclosure as to their terms. Each year as the profit is determined, notes of an amount equal to two-thirds of the year's profits should be transferred from the long-term liabilities to the current liabilities until all of the notes have been liquidated.

Work Step by Step

Most importantly, a promissory note which is also referred to as a note payable is a financial instrument where one party promises in form of writing to pay a certain amount of money to the other party at a future time under certain terms. Bottom line, a promissory note may be used in combination with various security agreements for them to be effective.
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