On October 1, Year 1 Coker Company issued a $2,000 face value discount note that carried a 6% annual interest rate and a one year term to maturity. On the date of issue
A)the amount of total assets would increase by $2,000.
B)the amount of total liabilities would increase by $1,880.
C)the amount of total assets would increase by $2,120.
D)the amount of total liabilities would increase by $2,120.

Question

Quizplus · Accepted Answer

The note is issued at a discount, meaning the company receives less than the face value. The interest is deducted upfront, so the liability increases by the present value of the note, which is $2,000 minus the interest ($2,000 * 6% = $120), resulting in $1,880.

On October 1, Year 1 Coker Company Issued a $2,000