On August 1, Year 1, Denver & Co. issued a $24,000 face value discount note to First Bank. The note had a 6% discount rate and a one-year term to maturity.Required:a) Prepare the journal entry to record the issuance of the note.b) Prepare the adjusting entry to accrue interest expense at December 31, Year 1.c) Compute the carrying value of the note at December 31, Year 1. d) Prepare all necessary journal entries on August 1, Year 2. (Assume that interest expense has not yet been accrued during Year 2 and that the note was paid in full.)
What will be an ideal response?
a)
| Cash | 22,560 | ? |
| Discount on notes payable | 1,440 | ? |
| Notes payable | ? | 24,000 |
b)
| Interest expense | 600 | ? |
| Discount on notes payable | ? | 600 |
Year 1 interest expense = Amortization of discount = Discount of $1,440 × (5 ÷ 12) = $600
c) $23,160
Carrying value = Notes payable account balance of $24,000 ? Discount on notes payable account balance of ($1,440 ? $600) = $23,160
d)
| Interest expense | 840 | ? |
| Discount on notes payable | ? | 840 |
| Notes payable | 24,000 | ? |
| Cash | ? | 24,000 |
Year 2 interest expense = Amortization of discount = Discount of $1,440 × (7 ÷ 12) = $840
You might also like to view...
According to a major study of more than 1,000 commercials, the single most important factor in whether a commercial will be persuasive is whether the communication ________
A) stresses a unique attribute of benefit of the product B) employs a sexual symbol or suggestion C) provides specific price information D) features a credible spokesperson
On a statement of cash flows prepared using the indirect method, the amount representing cash paid for interest would
A) be included in the net cash flows from financing activities section. B) not be shown. C) be included in the net cash flows from investing activities section. D) be included in the net cash flows from operating activities section.
You have a savings bond that will be worth $750 when it matures in 3 years, but you need cash
today. If the current going rate of interest is 5%, what is your bond worth if you sell it today (rounded to the nearest dollar)? A) $675 B) $612 C) $625 D) $648
The TRUSTe seal is an example of a(n)
A) business rating. B) intermediary. C) B2B exchange. D) trustmark.