Question

Marigold Corporation, a publicly-traded company, agreed to loan money to another company. On July 1, 2020, the company received a five-year promissory note with a face value of $510,000, paying interest at a face rate of 4% on July 1 each year. The note was issued to yield an effective interest rate of 5%. Marigold used the effective interest method of amortization for discounts or premiums, and the company’s year-end is September 30.

Use 1. PV.1 Tables, 2. a financial calculator, or 3. Excel functions to arrive at the amount to record the note receivable. (Round present value factor calculations to 5 decimal places, e.g. 1.25125 and the final answer to 0 decimal places, e.g. 58,971.)

Prepare a schedule of note premium / discount amortization schedule. (Round answers to 0 decimal places, e.g. 58,971.)

Schedule of Note Discount Amortization Effective Interest Method
Date (d-m-yr)		Cash Received		Interest Income		Discount Amortized		Carrying Amount
1-Jul-20								$
1-Jul-21		$		$		$
1-Jul-22
1-Jul-23
1-Jul-24
1-Jul-25
		$		$		$

Prepare the journal entries to record the issue of the note on July 1, 2020, and any required accrual entries at the company’s year-end on September 30, 2020. Finally, prepare the journal entry to record the first cash collection received on July 1, 2021 for Marigold Corporation. (Round answers to 0 decimal places, e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Date	Cash Received	Interest Income	Discount Amortized	Carrying Amount
1-Jul-20				487,922
1-Jul-21	20,400	24,396	3,996	491,918
1-Jul-22	20,400	24,596	4,196	496,114
1-Jul-23	20,400	24,806	4,406	500,520
1-Jul-24	20,400	25,026	4,626	505,146
1-Jul-25	20,400	25,254	4,854	510,000
Calculate the cash received from issuing bond:
Present value of maturity payment (510,000 x 0.78353)		399,600
Present value of interest payment (20,400 x 4.32948)		88,321
Present value of cash payments		487,922
Date	Account Titles and Explanation	Debit	Credit
1-Jul-20	Cash	487,922
	Discount on Notes Payable	22,078
	Notes Payable		510,000
30-Sep-20	Interest Expense	6,099
	Discount on Notes Payable		999
	Interest Payable		5,100
1-Jul-21	Interest Expense	18,297
	Interest Payable	5,100
	Discount on Notes Payable		2,997
	Cash		20,400