Question

Kohl Company lent $48,600 to Hemingway, Inc, accepting Hemingway's 2-year, $59,127, zero-interest-bearing note. The implied interest rate is 10.3%. Prepare Kohl's journal entries for the initial transaction, recognition of interest each year, and the collection of $59,127 at maturity.

Answer 1

	General Journal	Debit	Credit
1.	Initial Transaction:
	Notes Receivable	$59,127
	Discount on Notes Receivable		$10,527
	Cash		$48,600
2.	Interest in Year 1:
	Discount on Notes Receivable	$5,006
	Interest Revenue($48,600 * 10.3%)		$5,006
3.	Interest in Year 2:
	Discount on Notes Receivable	$5,521
	Interest Revenue[($48,600 + $5,006) * 10.3%]		$5,521
4.	At maturity:
	Cash	$59,127
	Notes Receivable		$59,127