FASB Codification: Zero-Interest Bearing Note

Wie Company has been operating for just 2 years, producing specialty golf equipment for women golfers. To date, the company has been able to finance its successful operations with investments from its principal owner, Michelle Wie, and cash flows from operations. However, current expansion plans will require some borrowing to expand the company's production line. As part of the expansion plan, Wie will acquire some used equipment by signing a zero-interest-bearing note. The note has a maturity value of $50,000 and matures in 5 years. A reliable fair value measure for the equipment is not available, given the age and specialty nature of the equipment. As a result, Wie's accounting staff is unable to determine an established exchange price for recording the equipment (nor the interest rate to be used to record interest expense on the long-term note). They have asked you to conduct some accounting research on this topic.

Instructions Go to http://aaahq.org/ascLogin.cfm to log in. Prepare responses to the following based on FASB Accounting Standards Codification. Provide Codification references for your responses, i.e. FASB ASC 835-30-XX-XX. User ID: AAA52069 Password: PQ96mqJ Additional Instructions Each group should be comprised of no more than 4 people.

A. Identify the authoritative literature that provides guidance on the zero-interest-bearing note.

B. How is present value determined when an established exchange price is not determinable and a note has no ready market? What is the resulting interest rate often called?

C. Where should a discount or premium appear in the financial statements? What about issue costs?