On October 1, Year 1, Hartford Company issued a $20,000 face value discount note. The note had a 6% discount rate and a one-year term to maturity. Which of the following would be included in the adjustment, dated December 31, Year 1, to recognize interest accrued since the issuance date?

Question

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The adjustment to recognize interest accrued since the issuance date would require an increase to Interest Expense for $300, which is calculated by multiplying the face value of the note ($20,000) by the discount rate (6%) and the time period elapsed (3/12 of a year, or one quarter). Option A, an increase to Discount on Notes Payable, would be made at the issuance date but would not be adjusted at December 31, Year 1. Option C, an increase to Interest Payable, would be made at December 31, Year 1, but it represents interest that has been earned but not paid yet, so it would not be included in the adjustment to recognize interest accrued. Option D is incorrect because there is a need to make an adjustment on December 31, Year 1, to recognize interest accrued.

On October 1, Year 1, Hartford Company Issued a $20,000