Question

Brief Exercise 14-11

Marigold Corporation issued a 5-year, $80,000, zero-interest-bearing note to Brown Company on January 1, 2020, and received cash of $45,394. The implicit interest rate is 12%.

Prepare Marigold’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest. (Round answers to 0 decimal places, e.g. 38,548. 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 amount is entered. Do not indent manually.)

A. DR CR

DR CR

DR CR

B. DR CR

DR CR

Answer 1

A)

Cash A/c DR 45,394

Discount on note payable A/c DR 34,606

To Note payable A/c CR 80,000

(Being note payable issued )

B)

Interest expense A/c DR 5,447

To Discount on note payable A/c CR 5,447

(Interest expense recorded)

Interest expense is calculated by the following

=Cash received x implicit interest rate

= 45,394 x 12%

=5,447.28