Question

On January 1, Bramble Corp. lent $39,000 to Marin Inc., accepting Marin’s $51,909, three-year, zero-interest-bearing note. The implied interest is 10%.

Bramble’s journal entries for the initial transaction, recognition of interest each year assuming use of the effective interest method, and the collection of $51,909 at maturity.

Account Titles	Debit	Credit
(To record initial transaction)
(To record interest income in the first year)
(To record interest income in the second year)
(To record interest income in the third year)

(To record collection at maturity)

Answer 1

Solution:

Bramble Corp.
Journal Entries
Date	Particulars	Debit	Credit
Jan 1, Year 1	Note receivables Dr	$39,000.00
	To Cash		$39,000.00
	(To record money lent)
Dec 31, Year 1	Note receivables Dr ($39,000*10%)	$3,900.00
	To Interest revenue		$3,900.00
	(To record interest revenue)
Dec 31, Year 2	Note receivables Dr ($42,900*10%)	$4,290.00
	To Interest revenue		$4,290.00
	(To record interest revenue)
Dec 31, Year 3	Note receivables Dr ($47,190*10%)	$4,719.00
	To Interest revenue		$4,719.00
	(To record interest revenue)
Jan 1, Year 4	Cash Dr	$51,909.00
	To Note receivables		$51,909.00
	(To record collection at maturity)