Question

Studying Inc. issued a $270,000, three-year, zero-interest-bearing note payable to Sleeping Corp. for equipment on April 30, 2020. Studying Inc would normally pay interest at 6%. Studying Inc has a December 31 year-end and will repay the note with three equal yearly payments of $90,000 and follows IFRS.

Prepare the following journal entries for Sleeping Inc.

1. Record the note

2. December 31, 2020 interest accrual

3. April 30, 2021 payment

4. December 31, 2021 interest accrual

5. April 30, 2022 payment

Answer 1

In the books of studying inc : journal entries

Date	Account title	Debit	Credit
April 30, 2020	Equipment (90,000 × PVAF(6%,3)) (90,000 × 2.67301)	$2,40,571
	Discount on notes payable	$29,429
	Notes payable		$2,70,000
Dec 31, 2020	interest expense (14,434 × 8/12)	$9,623
	Discount on bonds payable		$9,623
April 30, 2021	notes payable	$90,000
	Interest expense(14,434 × 4/12)	$4,811
	Discount on bonds payable		$4,811
	Cash		$90,000
Dec 31, 2021	interest expense(9,900 × 8/12)	$6,600
	Discount on bonds payable		$6,600
April 30, 2022	Notes payable	$90,000
	Interest expense (9,900 × 4/12)	$3,300
	Discount on bonds payable		$3,300
	Cash		$90,000