Question

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

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)

Homework Answers

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)
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