Question

Seattle company issued a $30,000 face value discount note payable to first federal bank on september 1, year 1. the note had a 5% discount rate and a one-year term. what is the amount of interest expense appearing on the year 1 income statement? multiple choice

-$3,000
-$500
-$1,000
-$1,500

Answer 1

The amount of interest expense appearing on the Year 1 income statement for the discount note is -$1,500.

Step-by-step explanation:

The correct answer is option -$1,500.

In this case, the discount note payable is issued on September 1, Year 1 with a face value of $30,000. The discount rate is 5% and the term is one year. To calculate the amount of interest expense appearing on the Year 1 income statement, we can use the formula:

Interest Expense = Face Value x Discount Rate

Using the given information, we can calculate the interest expense:

Interest Expense = $30,000 x 0.05 = $1,500

Therefore, the amount of interest expense appearing on the Year 1 income statement is -$1,500.

The correct answer is option -$1,500. The interest expense for a discount note is calculated based on the discount rate applied to the face value of the note. Since the Seattle Company issued a $30,000 face value discount note with a 5% discount rate, the total discount is $30,000 × 0.05 = $1,500.

This amount represents the interest expense for the company and is the amount that will appear on the Year 1 income statement. Considering the one-year term, the entire interest expense will be recognized in Year 1.