Seattle Company issued a $90,000 face value discount note payable to First Federal Bank on September 1, Year 1. The note had a 4% discount rate and a one-year term. What is the amount of interest expense appearing on the Year 1 income statement?

Question

Quizplus · Accepted Answer

The discount on the note is $90,000 x 4% = $3,600. This amount is amortized over the life of the note, so the interest expense for Year 1 is $3,600 / 1 = $3,600.

Seattle Company Issued a $90,000 Face Value Discount Note Payable