Question

On December 31, 2019, Horizons Bank extends a loan to Begley Company and receives in exchange a 5 year, $50,000 zero-interest bearing note. The market rate for a similar note is 6%. Using this information, answer the following questions:

Prepare the journal entry made by Horizons Bank to record the intial issuance of the note on December 31, 2019:

12.31.19 _ _________________________________

   ____________________________________

____________________________________

Prepare the journal entry made by Horizons Bank to record the interest on the note on December 31, 2020:

12.31.20 _ _________________________________

   ____________________________________

Answer 1

Answer-Following entries have been posted by Horizons bank.

1)Journal entry made by horizons bank to record the initial issuance as on December 31, 2019

In the books of Horizons Bank
Particulars	Dr	Cr
Security Account	$50000
To Begley Company		$50000
(Being the exchange of zero bearing note for extending loan considered as security)

2)journal entry made by Horizons Bank to record the interest on the note on December 31, 2020:

In the books of Horizons Bank
Particulars	Dr	Cr
Interest Received Account	$3000
To Income From Security Account		$3000
(Being the amount received against the interest of zero bearing note assuming that market-rate given 6% is the interest rate)