Question

Samson Corporation issued a 4-year, $75,000, zero-interest-bearing note to Brown Company on January 1, 2017, and received cash of $47,664. The implicit interest rate is 12%. Prepare Samson’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.)

Answer 1

Answer:

Explanation:

The journal entries are shown below:

(A) Cash A/c Dr                               $47,664

    Discount on note payable         $27,336

             To Note Payable                                        $75,000

(Being note payable is issued)

(B) Interest expense A/c Dr       $5,719.68

           To  Discount on note payable                  $5,719.68

(Being interest expense recorded)

The interest expense is computed by

= Cash received × implicit interest rate

= $47,664 × 12%

= $5,719.68