Interest-Bearing Notes – Current Liabilities

One way a firm borrows funds is by signing an interest-bearing note. A bank or other lender will loan the face amount, or principal, of the note for a specified period. The borrower will then pay interest periodically and repay the principal when the note becomes due (or at its maturity date). If Random Enterprises, Inc., for example, borrows $10 million at the beginning of 2000 for two years at a market interest rate of 12% per year, the financial statements would reflect the following events.

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