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Seattle Company issued a $90,000 face value discount note payable to the First Federal Bank on September 1,2016.The note carried a one-year term and a 4% discount rate.
-The carrying value of the liability appearing on the December 31,2016 balance sheet will amount to:
A)$80,400
B)$87,600
C)$90,000
D)$88,800

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Seattle Company issued a $90,000 face value discount note payable to the First Federal Bank on September 1,2016.The note carried a one-year term and a 4% discount rate.
-The carrying value of the liability appearing on the December 31,2016 balance sheet will amount to:
A)$80,400
B)$87,600
C)$90,000
D)$88,800

Quizplus · Accepted Answer

The note is issued at a discount, meaning the company receives less than the face value. The discount is $90,000 * 4% = $3,600. The carrying value at issuance is $90,000 - $3,600 = $86,400. By December 31, 2016, four months of interest have accrued, which is $3,600 * (4/12) = $1,200. Therefore, the carrying value is $86,400 + $1,200 = $87,600.

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