Question

Waterway Industries signed a three-month, zero-interest-bearing note on November 1, 2020 for the purchase of $499900 of inventory. The face value of the note was $512500. Waterway 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
a. debit to Discount on Note Payable for $1,300.

b. debit to Interest Expense for $2,600.

c. credit to Discount on Note Payable for $1,300.

d. credit to Interest Expense for $2,600.

Answer 1

Answer:c. credit to discount on note payable of $1300

Explanation:

The total three months debit on the transaction has been recognized in the month of November of which is to be spread for three months period. As at December the three months debit is still in the account but it's supposed to be two months. The correction is to credit the account for one month installment to reduce the debits to two. This is why thier i is need for a credit of $1300 to discount on note payable account.