Brief Exercise 7-8 Leon Acrobats lent $12,174 to Donaldson, Inc., accepting Dona

Question

Brief Exercise 7-8 Leon Acrobats lent $12,174 to Donaldson, Inc., accepting Donaldson's 2-year, $1s ooo zero interest-bearing note. The implied interest rate is i% decimal places, e.g Prepare Leon's journal entries for the initial transaction, recognition of interest each year, and the collection of $15,000 at maturity. (Round answers too 5,275. IT no entry is required, select "No Entry" for the account titles and enter o for the a amount is entered. Do not indent manually,) 1. (To record the initial transations) (To record the recognition of interest in year one) (To recognize the Interest in year 2)

Explanation / Answer

Ans)

1) Notes Receivable 15,000

Discount on Notes Receivable 2826

Cash 12174

(To record the initial transations)

2) Discount on Notes Receivable 1339

Interest Revenue 1339

(12174 X 11%) = 1339

(To record the recognition of interest in year one)

3) Discount on Notes Receivable 1486

Interest Revenue 1486

(12174 + 1339) X 11% = 1486

(To recognize the interest in year 2)

4) Cash 15,000

Notes Receivable 15,000

(To record the collection of the note)

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