The amortization of the discount on a note payable has what effect on a company's financial statements?
A)Decreases interest expense and decreases liabilities.
B)Decreases interest expense and increases liabilities.
C)Increases interest expense and decreases liabilities.
D)Increases interest expense and increases liabilities.

Question

Quizplus · Accepted Answer

Amortizing the discount on a note payable increases interest expense because the discount represents additional interest cost. It also increases liabilities as the discount is reduced, bringing the note payable to its face value.

The Amortization of the Discount on a Note Payable Has