Use the following to answer questions 114-116:Seattle Company issued a $90,000 face value discount note payable to First Federal Bank on September 1, Year 1. The note had a 4% discount rate and a one-year term.What is the amount of interest expense appearing on the Year 1 income statement?A.$1,200B.$3,600C.$2,400D.$7,200
What will be an ideal response?
A
Discount = $90,000 × 0.04 × 1 = $3,600
Four months (Sept. 1-Dec. 31) have passed.
Year 1 interest expense = Amortization of discount = Discount of $3,600 × (4 ÷ 12) = $1,200
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