Question

Newman Acrobats lent $15,992 to Donaldson, Inc., accepting Donaldson’s 2-years, $19,000, zero-interest-bearing note. The implied interest rate is 9%.

Prepare Newman’s journal entries for the initial transaction, recognition of interest each year, and the collection of $19,000 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)

Answer 1

No.	Account Titles and Explanation	Debit	Credit
1	Notes Receivable	19000
	Discount on Notes Receivable		3008
	Cash		15992
	(To record the initial transactions)
2	Discount on Notes Receivable	1439		=15992*9%
	Interest Revenue		1439
	(To record the recognition of interest in year one)
3	Discount on Notes Receivable	1569		=(15992+1439)*9%
	Interest Revenue		1569
	(To recognize the interest in year 2)
4	Cash	19000
	Notes Receivable		19000
	(To record the collection of the note)