Question

Sheridan Company signed a three-month, zero-interest-bearing note on November 1, 2020 for the purchase of $497000 of inventory. The face value of the note was $509000. Sheridan 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 aa. debit to Discount on Note Payable.b. debit to Interest Expense .c. credit to Discount on Note Payable.d. credit to Interest Expense.

Answer 1

Step-by-step explanation:

The journal entry to record the note payable at discount

Cash A/c Dr $497,000

Discount on Note payable A/c Dr $12,000

To Note Payable A/c $509,000

(Being the note payable is recorded at discount)

Now we know that the discount is for 3 months but we have to calculated for 2 months only i.e from November 1 to December 31

So, the discount would be

= $12,000 × 2 months ÷ 3 months

= $8,000

And the journal entry is

Interest Expense A/c Dr $8,000

To Discount on Note payable A/c $8,000

(Being the interest expense is recorded)