On December 8, Kerrin Company recorded $300 interest deducted from a discounted note payable. What adjusting entry should record interest earned at the end of December?
A) Debit Interest Income; credit Discount on Notes Receivable
B) Debit Interest Expense; credit Discount on Notes Payable
C) Debit Interest Expense; credit Cash
D) Debit Interest Income; credit Discount on Notes Payable

Question

Quizplus · Accepted Answer

Interest expense related to a discounted note payable increases the carrying amount of the liability, so the correct entry is to debit Interest Expense and credit Discount on Notes Payable.

On December 8, Kerrin Company Recorded $300 Interest Deducted from a Discounted