Question

On December 1, 20x1, Land Co. issued a $100,000, 5-month, note to Castle Bank. Interest was discounted at issuance at an 8% discount rate. Prepare journal entries for Land on:

1) December 1, 20x1

2) December 31, 20x1

3) May 1, 20x2 (maturity)

Answer 1

Date	Accounts title	Debit	Credit
1 Dec 20X1	Cash	$100,000.00
	Notes Payable		$100,000.00
	(to record issuance)
31 Dec 20X1	Interest Expense	$666.67 or $ 667
	Interest Payable ($100000 x 8% x 1/12)		$666.67 or $ 667
	(to record 1 month interest expense accrued)
1 May 20X2	Interest Expense ($100000 x 8% x 4/12)	$2,666.67 or $ 2667
	Interest Payable	$666.67 or $ 667
	Notes Payable	$100,000.00
	Cash		$103,333.33 or $ 103334
	(to record payment at maturity)