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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Exercise Zero Coupon Note

Dodge City Products borrowed SI00,000 cash by issuing a 36-month, $120,880 zero coupon note on January 1, 2021. The note matures on December 31, 2023.

Required:

  1. Prepare the entry to recognize the issuance of the note.
  2. Prepare the adjustments to recognize 2021 and 2022 interest.
  3. Prepare the entry to recognize 2023 interest and repayment of the note at maturity

To determine

(a)

Introduction:

A note is long term liability wherein the issuer is entitled to pay the face value of the Note at the time of maturity and make interest payments periodically.

To record:

Journal entry for the issuance of Notes.

Explanation

Given:

$120,880 zero coupon Notes were issued at $100,000 for 36 months.

Cash will be debited as it is being borrowed from the lender and Notes payable will credited as the funds have been raised by issuing Notes Payable...

To determine

(b)

Introduction:

A note is long term liability wherein the issuer is entitled to pay the face value of the Note at the time of maturity and make interest payments periodically.

To record:

Adjusting Journal entry for interest expense for year 2021 and 2022.

To determine

(c)

Introduction:

A note is long term liability wherein the issuer is entitled to pay the face value of the Note at the time of maturity and make interest payments periodically.

To record:

Journal entry for interest expense for year 2023 and repayment of note.

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