Question

Entries for Discounted Note Payable

A business issued a 90-day note for $36,000 to a creditor on account. The note was discounted at 8%. Assume a 360-day year.

a. Journalize the entry to record the issuance of the note. If an amount box does not require an entry, leave it blank. If necessary, round to one decimal place.

b. Journalize the entry to record the payment of the note at maturity.

Answer 1

a.	Present Value of Notes Payable of $ 1	=	(1+i)^-n		Where,
		=	(1+0.02)^-1		i	8%*90/360	=	0.02
		=	0.9804		n	1
b.	Present Value of Notes Payable	=	Notes Payable x Present Value of $ 1
		=	$ 36,000.0	x	0.9804
		=	$ 35,294.1
c.	Journal Entries:
Date	Account titles and explanation	Debit	Credit
At Issuance date	Accounts Payable	$         35,294.1
	Discount on Notes Payable	$ 705.9
	Notes Payable		$ 36,000.0
	(To record issuance of notes payable to creditors)
At Maturity	Notes Payable	$         36,000.0
	Cash		$ 36,000.0
	(To record payment of notes payable at maturity)