Question

Why would the fair value of notes payable increase and what does that mean for the company who issued the note ? Can you please give an example and explain as simply as possible

Answer 1

Notes Payable- It is general ledger account. Notes payable arises when company takes loan and in return, it issues promissory notes that it will pay the sum of money along with interest after or by a specific period of time. Notes payable is mostly a current liability if it is less than one year, if it is more than one year then it will be considered as Non current liability. Borrower will show the notes payable as outstanding liability until it is fully repaid.

Why would the fair value of notes payable increase and what does that mean for the company who issued the note:

When a company issues promissory notes, it increases fair value of notes payable under the liability section, it clearly says that company has taken loan and company's obligation has increased, company has to repay the loan and also make the payment of interest. Whenever company issues promissory notes, it means, its current liabilities (if less than one year) have increased. When company repays the loan, the fair value of notes payable decreases in the balance sheet.