Question

Oriole Company loaned $68,760 to Hemingway, Inc, accepting Hemingway's 2-year, $83,200, zero-interest-bearing note. The implied interest rate is 10%. Prepare Oriole's journal entries for the initial transaction, recognition of interest each year, and the collection of $83,200 at maturity. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
(To record the receipt of the note at a discount.)
(To record the interest revenue at the end of 1st year.)
(To record the interest revenue at the end of 2nd year.)
(To record receipt of notes.)

Answer 1

Account Titles and Explanation	Debit	Credit
Notes Receivable	83200
Cash		68760
Discount on Notes Receivable		14440
(To record the receipt of the note at a discount.)
Discount on Notes Receivable	6876		=68760*10%
Interest Revenue		6876
(To record the interest revenue at the end of 1st year.)
Discount on Notes Receivable	7564		=(68760+6876)*10%
Interest Revenue		7564
(To record the interest revenue at the end of 2nd year.)
Cash	83200
Notes Receivable		83200
(To record receipt of notes.)

answered by: anonymous