{"id":269,"date":"2024-09-06T16:48:08","date_gmt":"2024-09-06T16:48:08","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/other-current-and-noncurrent-assets-including-notes-receivable\/"},"modified":"2024-09-11T18:33:51","modified_gmt":"2024-09-11T18:33:51","slug":"other-current-and-noncurrent-assets-including-notes-receivable","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/other-current-and-noncurrent-assets-including-notes-receivable\/","title":{"raw":"Other Current and Noncurrent Assets, Including Notes Receivable","rendered":"Other Current and Noncurrent Assets, Including Notes Receivable"},"content":{"raw":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\r\n<ul>\r\n \t<li>Identify other common non-current assets<\/li>\r\n<\/ul>\r\n<\/section>&nbsp;\r\n<h2>Rights Under Lease<\/h2>\r\nA lease is a contract to rent property. The property owner is the grantor of the lease and is the lessor. The person or company obtaining rights to possess and use the property is the lessee. The rights granted under the lease are a leasehold. The accounting for a lease depends on whether it is a capital lease or an operating lease. Each of these lease types will be defined below.\r\n\r\nThe FASB has wrestled with issues around leases for a long time, beginning with a time when some companies were leasing assets and recording them as purchased and other companies were recording the lease payments as expenses without recognizing the asset.\r\n\r\nThe initial solution was to categorize some leases as capital leases, which are essentially purchases of the asset. More recently, the FASB issued accounting guidance that requires assets and liabilities arising from almost all leases to be recorded on the balance sheet, along with additional required disclosures regarding the amount, timing, and uncertainty of cash flows from leases.\r\n\r\nIf you look at Facebook:\r\n<table class=\"fin-table acctstatement\"><caption>FACEBOOK INC.\r\nCONSOLIDATED BALANCE SHEET\r\n(in millions, except for number of shares and par value)<\/caption>\r\n<thead>\r\n<tr>\r\n<th scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\r\n<th colspan=\"2\">December 31,<\/th>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\r\n<th scope=\"col\">2019<\/th>\r\n<th scope=\"col\">2018<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"3\"><span class=\"u-sr-only\">Category, <\/span><strong>Assets<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span>Current Assets:<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Cash and cash equivalents<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a019,079<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a010,019<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Marketable securities<\/td>\r\n<td class=\"r\">35,776<\/td>\r\n<td class=\"r\">31,095<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Accounts receivable, net of allowances of $206 and $229 as of December 31, 2019 and December 31, 2018, respectively<\/td>\r\n<td class=\"r\">9,518<\/td>\r\n<td class=\"r\">7,587<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total current assets<\/td>\r\n<td class=\"r line-single line\"><span class=\"u-sr-only\">Single line<\/span>\r\n66,225<\/td>\r\n<td class=\"r line-single line\"><span class=\"u-sr-only\">Single line<\/span>\r\n50,480<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Property and equipment, net<\/td>\r\n<td class=\"r\">35,323<\/td>\r\n<td class=\"r\">24,683<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating lease right-of-use assets, net<\/td>\r\n<td class=\"r\">9,460<\/td>\r\n<td class=\"r\">---<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Intangible assets, net<\/td>\r\n<td class=\"r\">894<\/td>\r\n<td class=\"r\">1,294<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Goodwill<\/td>\r\n<td class=\"r\">18,715<\/td>\r\n<td class=\"r\">18,301<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Other Assets<\/td>\r\n<td class=\"r\">2,759<\/td>\r\n<td class=\"r\">2,576<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>Total assets<\/strong><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\r\n$\u00a0\u00a0\u00a0\u00a0\u00a0133,376\r\n<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\r\n$\u00a0\u00a0\u00a0\u00a0\u00a097,334\r\n<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\nAnd The Home Depot:\r\n<table class=\"fin-table acctstatement\"><caption>THE HOME DEPOT INC.\r\nCONSOLIDATED BALANCE SHEET<\/caption>\r\n<thead>\r\n<tr>\r\n<th><em>in millions, except per share data<\/em><\/th>\r\n<th>February 2, 2020<\/th>\r\n<th>February 3, 2019<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"3\"><span class=\"u-sr-only\">Category, <\/span><strong>Assets<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span>Current Assets:<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Cash and cash equivalents<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a02,133<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a01,778<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Receivables, net<\/td>\r\n<td class=\"r\">2,106<\/td>\r\n<td class=\"r\">1,936<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Merchandise inventories<\/td>\r\n<td class=\"r\">14,531<\/td>\r\n<td class=\"r\">13,925<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total current assets<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\r\n19,810<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\r\n18,529<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net property and equipment<\/td>\r\n<td class=\"r\">22,770<\/td>\r\n<td class=\"r\">22,375<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Operating lease right-of-use assets<\/td>\r\n<td class=\"r\">5,595<\/td>\r\n<td class=\"r\">---<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Goodwill<\/td>\r\n<td class=\"r\">2,254<\/td>\r\n<td class=\"r\">2,252<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Other Assets<\/td>\r\n<td class=\"r\">807<\/td>\r\n<td class=\"r\">847<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><strong>Total assets<\/strong><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\r\n$\u00a0\u00a0\u00a0\u00a0\u00a051,236\r\n<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span>\r\n$\u00a0\u00a0\u00a0\u00a0\u00a044,003\r\n<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\nYou can see the effect of this new GAAP. There is a line called \u201coperating lease right-of-use-assets\u201d that did not exist in prior years. This reflects the value of being able to use assets, like buildings, automobiles, and equipment, that are not included in property, plant, and equipment because the leases are not classified as capital leases.\r\n\r\nThe process of developing this new accounting pronouncement and the logic behind it are outlined in the <a href=\"https:\/\/www.fasb.org\/jsp\/FASB\/Document_C\/DocumentPage?cid=1176167901087&amp;acceptedDisclaimer=true\" target=\"_blank\" rel=\"noopener\">Update 2016-02\u2014Leases (TOPIC 842) SECTION C\u2014Background Information and Basis for Conclusions<\/a>.\r\n\r\nThe final major asset category we will examine in detail is notes receivable, which, like investments, can either be a short-term or long-term asset, depending on the maturity date.\r\n<h2>Notes Receivable<\/h2>\r\nAs discussed earlier, a note (also called a promissory note) is an unconditional written promise by a borrower to pay a definite sum of money to the lender (payee) on demand or on a specific date.\u00a0On the balance sheet of the lender (payee), a note is a receivable.\u00a0A customer may give a note to a business for an amount due on an account receivable, or for the sale of a large item such as a refrigerator.\u00a0Also, a business may give a note to a supplier in exchange for merchandise to sell or to a bank or an individual for a loan. Thus, a company may have notes receivable or notes payable arising from transactions with customers, suppliers, banks, or individuals.\r\n\r\nMost promissory notes have an explicit interest charge. Interest is the fee charged for use of money over a period. To the maker of the note, or borrower, interest is an expense; to the payee of the note, or lender, interest is a revenue. A borrower incurs interest expense; a lender earns interest revenue. For convenience, bankers sometimes calculate interest on a 360-day year; we calculate it on that basis in this text. (Some companies use a 365-day year.)\r\n\r\nThe basic formula for computing interest is:\r\n<p style=\"padding-left: 30px;\">[latex]\\text{principal}\\times\\text{interest rate}\\times\\text{frequency of a year}[\/latex]<\/p>\r\n\r\n<div>Remember that principal is the face value of the note, and interest on the note is always stated at an annual rate (even if the term of the note is for a period of less than a year). Frequency of a year is the amount of time for the note and can be either days or months. We need the frequency of a year because the interest rate is an annual rate and we may not want interest for an entire year but just for the time period of the note.<\/div>\r\nTo show how to calculate interest, assume a company borrowed $20,000 from a bank. The note has a principal (face value) of $20,000, an annual interest rate of 10%, and a life of 90 days. The interest calculation is:\r\n<p style=\"padding-left: 30px;\">[latex]\\$20,000\\text{ principal}\\times10\\%\\text{ interest rate}\\times\\left(\\dfrac{90\\text{ days}}{360\\text{ days}}\\right)=\\$500[\/latex]<\/p>\r\nNote that in this calculation we expressed the time period as a fraction of a 360-day year because the interest rate is an annual rate and the note life was days. If the note life was months, we would divide by 12 months for a year.\r\n<div>The maturity date is the date on which a note becomes due and must be paid. Sometimes notes require monthly installments (or payments) but usually all of the principal and interest must be paid at the same time. The wording in the note expresses the maturity date and determines when the note is to be paid. A note falling due on a Sunday or a holiday is due on the next business day. Several\u00a0<a href=\"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/chapter\/accrued-interest-revenue\/\" target=\"_blank\" rel=\"noopener\" data-saferedirecturl=\"https:\/\/www.google.com\/url?q=https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/chapter\/accrued-interest-revenue\/&amp;source=gmail&amp;ust=1700000470130000&amp;usg=AOvVaw3rlnJMt58qXB2Gz3kXMzxP\">examples of typical maturity date wording<\/a>\u00a0are presented in the section on Accrued Interest Revenue.<i><\/i><\/div>\r\nSometimes a company receives a note when it sells high-priced merchandise; more often, a note results from the conversion of an overdue account receivable. When a customer does not pay an account receivable that is due, the company may insist that the customer give a note in place of the account receivable. This action allows the customer more time to pay the balance due, and the company earns interest on the balance until paid. Also, the company may be able to sell the note to a bank or other financial institution.\r\n\r\nTo illustrate the conversion of an account receivable to a note, assume that Price Company had purchased $18,000 of merchandise on August 1 from Cooper Company on account. The normal credit period has elapsed, and Price cannot pay the invoice. Cooper agrees to accept Price\u2019s $18,000, 15%, 90-day note dated September 1 to settle Price\u2019s open account. Assuming Price paid the note at maturity and both Cooper and Price have a December 31 year-end, the entries on the books of Cooper are:\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><\/caption>\r\n<thead>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Post. Ref.<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<th scope=\"row\">Aug 1<\/th>\r\n<td>Accounts Receivable\u2014Price Company<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">18,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Aug 1<\/span><\/th>\r\n<td>Sales<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">18,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Aug 1<\/span><\/th>\r\n<td>To record sale of merchandise on account.<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Sept 1<\/th>\r\n<td>Notes Receivable<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">18,000<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Sept 1<\/span><\/th>\r\n<td>Accounts Receivable<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">18,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Sept 1<\/span><\/th>\r\n<td>To record exchange of a note from Price Company for open account.<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Nov. 30<\/th>\r\n<td>Cash<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">18,675<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\r\n<td>Notes Receivable<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">18,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\r\n<td>Interest Revenue [18,000 x 15% x (90\/360)]<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">675<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\r\n<td>To record receipt of Price Company note principal and interest.<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nNote: Maturity date calculated as November 30 since it was a 90 day note \u2212 29 days left in September (30 days in Sept \u2212 note day Sept 1) \u2212 31 days in October leaves 30 days remaining in November.\r\n\r\nThe $18,675 paid by Price to Cooper is called the maturity value of the note. Maturity value is the amount that the company (maker) must pay on a note on its maturity date; typically, it includes principal and accrued interest, if any.\r\n\r\nSometimes the maker of a note does not pay the note when it becomes due. The next section describes how to record a note not paid at maturity.\r\n\r\nA dishonored note is a note that the maker failed to pay at maturity. Since the note has matured, the holder or payee removes the note from Notes Receivable and records the amount due in Accounts Receivable.\r\n\r\nAt the maturity date of a note, the maker is responsible for the principal plus interest. The payee should record the interest earned and remove the note from its Notes Receivable account. Thus, the payee of the note should debit Accounts Receivable for the maturity value of the note and credit Notes Receivable for the note\u2019s face value and Interest Revenue for the interest.\r\n<table class=\"fin-table gridded\"><caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><\/caption>\r\n<thead>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Date<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Post. Ref.<\/th>\r\n<th scope=\"col\">Debit<\/th>\r\n<th scope=\"col\">Credit<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"row\">Nov. 30<\/th>\r\n<td>Accounts Receivable\u2014Price Company<\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">18,675<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\r\n<td>Notes Receivable<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">18,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\r\n<td>Interest Revenue<\/td>\r\n<td><\/td>\r\n<td class=\"r\"><\/td>\r\n<td class=\"r\">675<\/td>\r\n<\/tr>\r\n<tr>\r\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\r\n<td>To record dishonor of Price Company note.<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<section class=\"textbox watchIt\" aria-label=\"Watch It\"><iframe src=\"\/\/plugin.3playmedia.com\/show?mf=6352432&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=DDWmiuUKUFc&amp;video_target=tpm-plugin-rmc8p0bn-DDWmiuUKUFc\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\" data-mce-fragment=\"1\"><\/iframe>You can view the <a href=\"https:\/\/course-building.s3.us-west-2.amazonaws.com\/Financial+Accounting\/Transcripts\/InterestBearingNotesReceivableEntries_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Interest Bearing Notes Receivable Entries (Intermediate Financial Accounting I #10)\" here (opens in new window)<\/a>.<\/section><section class=\"textbox tryIt\" aria-label=\"Try It\">[ohm2_question hide_question_numbers=1]25199[\/ohm2_question]<\/section>","rendered":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\n<ul>\n<li>Identify other common non-current assets<\/li>\n<\/ul>\n<\/section>\n<p>&nbsp;<\/p>\n<h2>Rights Under Lease<\/h2>\n<p>A lease is a contract to rent property. The property owner is the grantor of the lease and is the lessor. The person or company obtaining rights to possess and use the property is the lessee. The rights granted under the lease are a leasehold. The accounting for a lease depends on whether it is a capital lease or an operating lease. Each of these lease types will be defined below.<\/p>\n<p>The FASB has wrestled with issues around leases for a long time, beginning with a time when some companies were leasing assets and recording them as purchased and other companies were recording the lease payments as expenses without recognizing the asset.<\/p>\n<p>The initial solution was to categorize some leases as capital leases, which are essentially purchases of the asset. More recently, the FASB issued accounting guidance that requires assets and liabilities arising from almost all leases to be recorded on the balance sheet, along with additional required disclosures regarding the amount, timing, and uncertainty of cash flows from leases.<\/p>\n<p>If you look at Facebook:<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>FACEBOOK INC.<br \/>\nCONSOLIDATED BALANCE SHEET<br \/>\n(in millions, except for number of shares and par value)<\/caption>\n<thead>\n<tr>\n<th scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\n<th colspan=\"2\">December 31,<\/th>\n<\/tr>\n<tr>\n<th scope=\"col\"><span class=\"u-sr-only\">Description<\/span><\/th>\n<th scope=\"col\">2019<\/th>\n<th scope=\"col\">2018<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td colspan=\"3\"><span class=\"u-sr-only\">Category, <\/span><strong>Assets<\/strong><\/td>\n<\/tr>\n<tr>\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span>Current Assets:<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Cash and cash equivalents<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a019,079<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a010,019<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Marketable securities<\/td>\n<td class=\"r\">35,776<\/td>\n<td class=\"r\">31,095<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Accounts receivable, net of allowances of $206 and $229 as of December 31, 2019 and December 31, 2018, respectively<\/td>\n<td class=\"r\">9,518<\/td>\n<td class=\"r\">7,587<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total current assets<\/td>\n<td class=\"r line-single line\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n66,225<\/td>\n<td class=\"r line-single line\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n50,480<\/td>\n<\/tr>\n<tr>\n<td>Property and equipment, net<\/td>\n<td class=\"r\">35,323<\/td>\n<td class=\"r\">24,683<\/td>\n<\/tr>\n<tr>\n<td>Operating lease right-of-use assets, net<\/td>\n<td class=\"r\">9,460<\/td>\n<td class=\"r\">&#8212;<\/td>\n<\/tr>\n<tr>\n<td>Intangible assets, net<\/td>\n<td class=\"r\">894<\/td>\n<td class=\"r\">1,294<\/td>\n<\/tr>\n<tr>\n<td>Goodwill<\/td>\n<td class=\"r\">18,715<\/td>\n<td class=\"r\">18,301<\/td>\n<\/tr>\n<tr>\n<td>Other Assets<\/td>\n<td class=\"r\">2,759<\/td>\n<td class=\"r\">2,576<\/td>\n<\/tr>\n<tr>\n<td><strong>Total assets<\/strong><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n$\u00a0\u00a0\u00a0\u00a0\u00a0133,376<br \/>\n<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n$\u00a0\u00a0\u00a0\u00a0\u00a097,334<br \/>\n<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>And The Home Depot:<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>THE HOME DEPOT INC.<br \/>\nCONSOLIDATED BALANCE SHEET<\/caption>\n<thead>\n<tr>\n<th><em>in millions, except per share data<\/em><\/th>\n<th>February 2, 2020<\/th>\n<th>February 3, 2019<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td colspan=\"3\"><span class=\"u-sr-only\">Category, <\/span><strong>Assets<\/strong><\/td>\n<\/tr>\n<tr>\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span>Current Assets:<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Cash and cash equivalents<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a02,133<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0\u00a0\u00a01,778<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Receivables, net<\/td>\n<td class=\"r\">2,106<\/td>\n<td class=\"r\">1,936<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0Merchandise inventories<\/td>\n<td class=\"r\">14,531<\/td>\n<td class=\"r\">13,925<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total current assets<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n19,810<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n18,529<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Net property and equipment<\/td>\n<td class=\"r\">22,770<\/td>\n<td class=\"r\">22,375<\/td>\n<\/tr>\n<tr>\n<td>Operating lease right-of-use assets<\/td>\n<td class=\"r\">5,595<\/td>\n<td class=\"r\">&#8212;<\/td>\n<\/tr>\n<tr>\n<td>Goodwill<\/td>\n<td class=\"r\">2,254<\/td>\n<td class=\"r\">2,252<\/td>\n<\/tr>\n<tr>\n<td>Other Assets<\/td>\n<td class=\"r\">807<\/td>\n<td class=\"r\">847<\/td>\n<\/tr>\n<tr>\n<td><strong>Total assets<\/strong><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n$\u00a0\u00a0\u00a0\u00a0\u00a051,236<br \/>\n<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single line<\/span><br \/>\n$\u00a0\u00a0\u00a0\u00a0\u00a044,003<br \/>\n<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>You can see the effect of this new GAAP. There is a line called \u201coperating lease right-of-use-assets\u201d that did not exist in prior years. This reflects the value of being able to use assets, like buildings, automobiles, and equipment, that are not included in property, plant, and equipment because the leases are not classified as capital leases.<\/p>\n<p>The process of developing this new accounting pronouncement and the logic behind it are outlined in the <a href=\"https:\/\/www.fasb.org\/jsp\/FASB\/Document_C\/DocumentPage?cid=1176167901087&amp;acceptedDisclaimer=true\" target=\"_blank\" rel=\"noopener\">Update 2016-02\u2014Leases (TOPIC 842) SECTION C\u2014Background Information and Basis for Conclusions<\/a>.<\/p>\n<p>The final major asset category we will examine in detail is notes receivable, which, like investments, can either be a short-term or long-term asset, depending on the maturity date.<\/p>\n<h2>Notes Receivable<\/h2>\n<p>As discussed earlier, a note (also called a promissory note) is an unconditional written promise by a borrower to pay a definite sum of money to the lender (payee) on demand or on a specific date.\u00a0On the balance sheet of the lender (payee), a note is a receivable.\u00a0A customer may give a note to a business for an amount due on an account receivable, or for the sale of a large item such as a refrigerator.\u00a0Also, a business may give a note to a supplier in exchange for merchandise to sell or to a bank or an individual for a loan. Thus, a company may have notes receivable or notes payable arising from transactions with customers, suppliers, banks, or individuals.<\/p>\n<p>Most promissory notes have an explicit interest charge. Interest is the fee charged for use of money over a period. To the maker of the note, or borrower, interest is an expense; to the payee of the note, or lender, interest is a revenue. A borrower incurs interest expense; a lender earns interest revenue. For convenience, bankers sometimes calculate interest on a 360-day year; we calculate it on that basis in this text. (Some companies use a 365-day year.)<\/p>\n<p>The basic formula for computing interest is:<\/p>\n<p style=\"padding-left: 30px;\">[latex]\\text{principal}\\times\\text{interest rate}\\times\\text{frequency of a year}[\/latex]<\/p>\n<div>Remember that principal is the face value of the note, and interest on the note is always stated at an annual rate (even if the term of the note is for a period of less than a year). Frequency of a year is the amount of time for the note and can be either days or months. We need the frequency of a year because the interest rate is an annual rate and we may not want interest for an entire year but just for the time period of the note.<\/div>\n<p>To show how to calculate interest, assume a company borrowed $20,000 from a bank. The note has a principal (face value) of $20,000, an annual interest rate of 10%, and a life of 90 days. The interest calculation is:<\/p>\n<p style=\"padding-left: 30px;\">[latex]\\$20,000\\text{ principal}\\times10\\%\\text{ interest rate}\\times\\left(\\dfrac{90\\text{ days}}{360\\text{ days}}\\right)=\\$500[\/latex]<\/p>\n<p>Note that in this calculation we expressed the time period as a fraction of a 360-day year because the interest rate is an annual rate and the note life was days. If the note life was months, we would divide by 12 months for a year.<\/p>\n<div>The maturity date is the date on which a note becomes due and must be paid. Sometimes notes require monthly installments (or payments) but usually all of the principal and interest must be paid at the same time. The wording in the note expresses the maturity date and determines when the note is to be paid. A note falling due on a Sunday or a holiday is due on the next business day. Several\u00a0<a href=\"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/chapter\/accrued-interest-revenue\/\" target=\"_blank\" rel=\"noopener\" data-saferedirecturl=\"https:\/\/www.google.com\/url?q=https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/chapter\/accrued-interest-revenue\/&amp;source=gmail&amp;ust=1700000470130000&amp;usg=AOvVaw3rlnJMt58qXB2Gz3kXMzxP\">examples of typical maturity date wording<\/a>\u00a0are presented in the section on Accrued Interest Revenue.<i><\/i><\/div>\n<p>Sometimes a company receives a note when it sells high-priced merchandise; more often, a note results from the conversion of an overdue account receivable. When a customer does not pay an account receivable that is due, the company may insist that the customer give a note in place of the account receivable. This action allows the customer more time to pay the balance due, and the company earns interest on the balance until paid. Also, the company may be able to sell the note to a bank or other financial institution.<\/p>\n<p>To illustrate the conversion of an account receivable to a note, assume that Price Company had purchased $18,000 of merchandise on August 1 from Cooper Company on account. The normal credit period has elapsed, and Price cannot pay the invoice. Cooper agrees to accept Price\u2019s $18,000, 15%, 90-day note dated September 1 to settle Price\u2019s open account. Assuming Price paid the note at maturity and both Cooper and Price have a December 31 year-end, the entries on the books of Cooper are:<\/p>\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><\/caption>\n<thead>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Post. Ref.<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<th scope=\"row\">Aug 1<\/th>\n<td>Accounts Receivable\u2014Price Company<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">18,000<\/td>\n<td><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Aug 1<\/span><\/th>\n<td>Sales<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">18,000<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Aug 1<\/span><\/th>\n<td>To record sale of merchandise on account.<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Sept 1<\/th>\n<td>Notes Receivable<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">18,000<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Sept 1<\/span><\/th>\n<td>Accounts Receivable<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">18,000<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Sept 1<\/span><\/th>\n<td>To record exchange of a note from Price Company for open account.<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Nov. 30<\/th>\n<td>Cash<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">18,675<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\n<td>Notes Receivable<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">18,000<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\n<td>Interest Revenue [18,000 x 15% x (90\/360)]<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">675<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\n<td>To record receipt of Price Company note principal and interest.<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Note: Maturity date calculated as November 30 since it was a 90 day note \u2212 29 days left in September (30 days in Sept \u2212 note day Sept 1) \u2212 31 days in October leaves 30 days remaining in November.<\/p>\n<p>The $18,675 paid by Price to Cooper is called the maturity value of the note. Maturity value is the amount that the company (maker) must pay on a note on its maturity date; typically, it includes principal and accrued interest, if any.<\/p>\n<p>Sometimes the maker of a note does not pay the note when it becomes due. The next section describes how to record a note not paid at maturity.<\/p>\n<p>A dishonored note is a note that the maker failed to pay at maturity. Since the note has matured, the holder or payee removes the note from Notes Receivable and records the amount due in Accounts Receivable.<\/p>\n<p>At the maturity date of a note, the maker is responsible for the principal plus interest. The payee should record the interest earned and remove the note from its Notes Receivable account. Thus, the payee of the note should debit Accounts Receivable for the maturity value of the note and credit Notes Receivable for the note\u2019s face value and Interest Revenue for the interest.<\/p>\n<table class=\"fin-table gridded\">\n<caption class=\"u-clearfix\"><span style=\"text-transform: uppercase;\">Journal<\/span><\/caption>\n<thead>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Date<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Post. Ref.<\/th>\n<th scope=\"col\">Debit<\/th>\n<th scope=\"col\">Credit<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"row\">Nov. 30<\/th>\n<td>Accounts Receivable\u2014Price Company<\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">18,675<\/td>\n<td><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\n<td>Notes Receivable<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">18,000<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\n<td>Interest Revenue<\/td>\n<td><\/td>\n<td class=\"r\"><\/td>\n<td class=\"r\">675<\/td>\n<\/tr>\n<tr>\n<th><span class=\"u-sr-only\">Nov. 30<\/span><\/th>\n<td>To record dishonor of Price Company note.<\/td>\n<td><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<section class=\"textbox watchIt\" aria-label=\"Watch It\"><iframe loading=\"lazy\" src=\"\/\/plugin.3playmedia.com\/show?mf=6352432&amp;p3sdk_version=1.10.1&amp;p=20361&amp;pt=375&amp;video_id=DDWmiuUKUFc&amp;video_target=tpm-plugin-rmc8p0bn-DDWmiuUKUFc\" width=\"800px\" height=\"450px\" frameborder=\"0\" marginwidth=\"0px\" marginheight=\"0px\" data-mce-fragment=\"1\"><\/iframe>You can view the <a href=\"https:\/\/course-building.s3.us-west-2.amazonaws.com\/Financial+Accounting\/Transcripts\/InterestBearingNotesReceivableEntries_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Interest Bearing Notes Receivable Entries (Intermediate Financial Accounting I #10)&#8221; here (opens in new window)<\/a>.<\/section>\n<section class=\"textbox tryIt\" aria-label=\"Try It\"><iframe loading=\"lazy\" id=\"ohm25199\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=25199&theme=lumen&iframe_resize_id=ohm25199&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><\/section>\n","protected":false},"author":6,"menu_order":15,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Other Current and Non-Current Assets, Including Notes Receivable\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. 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