On December 1, 2014, Old Car Co. borrowed money at the bank by signing a 90-day non-interest-bearing note for $24,000 that was discounted at 8%. Which of the following entries is correct?

Question

Quizplus · Accepted Answer

Option A is incorrect as it only records the payment of the note and does not account for the discount. Option B is incorrect as there is no interest payable since the note is non-interest-bearing. Option C is incorrect as it does not account for the discount. Option D is correct as it records the accrued interest expense and the discount on notes payable account. The journal entry for December 1, 2014, will be:
Cash 24,000
Discount on Notes Payable 1,920
Note Payable 22,080
(Being the issuance of the 90-day non-interest-bearing note at 8% discount)
The journal entry for December 31, 2014, will be:
Interest Expense 160
Discount on Notes Payable 160
(Being the recognition of interest expense and amortization of the discount on notes payable)