Question

Bramble Corp. signed a three-month, zero-interest-bearing note on November 1, 2020 for the purchase of $498700 of inventory. The face value of the note was $511000. Bramble used a Discount of Note Payable account to initially record the note. Assuming that the discount will be amortized equally over the 3-month period and that there was no adjusting entry made for November, the adjusting entry made at December 31, 2020 will include a

Answer 1

Amortization of the discount at December 31, 2020 will include: a debit to interest expense for $8,200.

Step-by-step explanation:

Note is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

Since the face value of the note was $511,000 and the inventory was $498,700, then discount on the note is $12,300.

Amortization of the discount at December 31, 2020 will include: $12,300 / 3 x 2 months = $8,200.