Question

Henry Acrobats lent $44,628 to Donaldson, Inc., accepting Donaldson’s 2-years, $54,000, zero-interest-bearing note. The implied interest rate is 10%.

Prepare Henry’s journal entries for the initial transaction, recognition of interest each year, and the collection of $54,000 at maturity. (Round answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
1.
	(To record the initial transations)
2.
	(To record the recognition of interest in year one)
3.
	(To recognize the interest in year 2)
4.
	(To record the collection of the note)

Answer 1

No	Account title and explnation	Debit	Credit
1	Notes receivable	$54,000
	Discount on notes receivable		$9,372
	Cash		$44,628
	[To record the initial transactions]
2	Discount on notes receivable	$4,463
	Interest revenue [$44,628 x 10%]		$4,463
	[To record the recognition of interest in year one]
3	Discount on notes receivable	$4,909
	Interest revenue [($44,628 + $4,463) x 10%]		$4,909
	[To record the recognition of interest in year 2]
4	Cash	$54,000
	Notes receivable		$54,000
	[To record the collection of the note]