Assume that on January $1,$ Eclipse Corp. received a five$-$month, $$10,000$ zero$-$interest$-$bearing note from Galaxy Ltd$.$ The amount of cash lent to Galaxy Ltd$.,$ which is equal to the present value, is $$7,835($rounded$),$ resulting in a discount. Galaxy Ltd$.$s year$-$end is December $31.$ The discount $($implied interest$)$ is amortized straight$-$line annually.

Discount on Notes Payable is a contra account to Notes Payable and therefore is subtracted from Notes Payable on the balance sheet.