No. Account Titles and Explanation Debit Credit (To record the initial transatio

Question

No.

Account Titles and Explanation

Debit

Credit

(To record the initial transations)

(To record the recognition of interest in year one)

(To recognize the interest in year 2)

(To record the collection of the note)

Chris Acrobats lent $24,005 to Donaldson, Inc., accepting Donaldson’s 2-year, $28,000, zero-interest-bearing note. The implied interest rate is 8%.

Prepare Chris’s journal entries for the initial transaction, recognition of interest each year, and the collection of $28,000 at maturity. (Round answers to 0 decimal places, e.g. 5,275. 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 the amount is entered. Do not indent manually.)

No.

Account Titles and Explanation

Debit

Credit

1.

(To record the initial transations)

2.

(To record the recognition of interest in year one)

3.

(To recognize the interest in year 2)

4.

(To record the collection of the note)

Explanation / Answer

No. Account Titles and Explanation Debit Credit 1 Notes Receivable $28,000 Discount on Notes Receivable $3,995 Cash $24,005 (To record the initial transations) 2 Discount on Notes Receivable $1,920   Interest Revenue ($24,005 x 8%) $1,920 (To record the recognition of interest in year one) 3 Discount on Notes Receivable $2,074 Interest Revenue {($24,005 + $1,920) x 8%} $2,074 (To recognize the interest in year 2) 4 Cash $28,000   Notes Receivable $28,000 (To record the collection of the note)

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