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 carrying value of the liability appearing on the December 31, Year 1 balance sheet?

Question

Quizplus · Accepted Answer

The carrying value of the liability is the face value minus the unamortized discount. The discount is $90,000 * 4% = $3,600 for one year. By December 31, Year 1, four months of the discount have been amortized, so the unamortized discount is $3,600 * (8/12) = $2,400. Therefore, the carrying value is $90,000 - $2,400 = $87,600.

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