Pegasus Corp. signed a three-month, zero-interest-bearing $323,000 note on November 1, 2019 for the purchase of $250,000 of inventory. If Pegasus makes adjusting entries only at the end of the year, the adjusting entry made at December 31, 2019 will include a ________.
A) debit to Note Payable for $24,333
B) debit to Interest Expense for $48,667
C) credit to Note Payable for $24,333
D) credit to Interest Expense for $48,667

Question

Quizplus · Accepted Answer

The interest expense is the difference between the note's face value ($323,000) and the inventory purchase amount ($250,000), which is $73,000. Since the note is for three months, the monthly interest is $24,333. For two months (November and December), the interest expense is $48,667.