Question

On july 1, tau, inc., purchased a machine for $12,000 and issued in payment a one-year note payable for $13,200. on august 31, the company's fiscal year-end, the proper entry would be:

Answer 1

I believe the proper entry for the end of the year should be

Interest Expense 200
Discount on Notes Payable 200

Interest expense represents the additional principle amount of Debt, loan, or Bond while discount on notes payable while the discount on notes payable represents a contra liability that occurs when notes payable has lesser value compared to the face amount.