Question

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

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)

Homework Answers

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]
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