A bank loaned York Construction Company $35,000 on a 1-year, 6% note, but deducted the interest in advance.The journal entry made by York to record receipt of the cash would include an

Question

Quizplus · Accepted Answer

The correct answer is C because when a bank deducts interest in advance on a loan, the borrower records the interest as a "Discount on Notes Payable." This discount reduces the carrying amount of the note payable and is amortized over the life of the note. The interest deducted in advance ($35,000 * 6% = $2,100) is not recorded as Interest Revenue by the borrower but as a discount on the liability.

A Bank Loaned York Construction Company $35,000 on a 1-Year