Correction
Use supported current-price or present-value evidence to measure the exchanged asset and note. The property-for-note guidance begins in ASC 835-30-25-8. Paragraph 25-9 places the difference between face and present value in discount or premium.
The asset begins at the supported current amount. The note then moves toward its face amount as effective interest is recognized over the financing term.
How to avoid the mistake
Preserve the asset readiness date, note issue date, payment dates, supported cash-equivalent price, and rate evidence. Reconcile opening carrying amount plus later interest and payments to the note balance without adding interest to the asset after acquisition.
Where to watch
When this mistake may appear
- Property is exchanged for a long-term note with no stated rate or an unreasonable stated rate.
- The note face amount is greater than a supported current cash selling price.
Check your work
Your work may contain this mistake if:
- Debits the asset for the note's full face amount.
- Records no discount, premium, or later effective interest.
- Depreciates future financing cost as part of the asset.