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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 2, 2019, Jennings Company purchases machinery and equipment and borrows $200,000 on a 5-year non-interest-bearing note. The principal of $200,000 will be paid at the maturity date of December 31, 2023. To place a fair value on the transaction, the accountant will impute an interest rate and use that rate to compute the present value of the note. Assuming that an 8% interest rate is applicable, record the journal entry for interest expense for the year ended December 31, 2019.

To determine

Prepare journal entry to record for interest expense for the year ended December 31, 2019.

Explanation

Interest Expense:

Interest expense is the amount of interest that is accrued to be paid on the face value of debt borrowed. The basic sources of debt-financing are bonds, notes and leases.

Prepare journal entry to record for interest expense.

DateAccount titles and ExplanationDebitCredit
December 31, 2019Interest expense (1)$10,889.33  
      Discount on notes payable $10,889.33
 (To record payment of interest expense)  

Table (1)

Calculate interest expense.

Working note:

(1)Calculate interest expense...

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