As the Discount on Notes Payable account is reduced:
A)a credit is made to the Interest Expense account
B)the market value of the note is also reduced
C)the carrying value of the note is increased
D)the face rate of interest is increased

Question

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The Discount on Notes Payable account represents the amount by which the face value of the note exceeds its carrying value. As the Discount on Notes Payable is reduced (i.e., as the carrying value of the note is increased), the balance sheet liability for the note is increased. This results in a higher interest expense recorded on the income statement, but this is not a direct result of the reduction in the Discount on Notes Payable account. The market value of the note may or may not be affected by changes in the Discount on Notes Payable account, depending on market conditions. The face rate of interest on the note is fixed, and is not affected by changes in the Discount on Notes Payable account.

As the Discount on Notes Payable Account Is Reduced