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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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Noninterest-Bearing Note (Straight Line)

On January 1, 2020, Athena Corporation borrowed $110,000 cash on a $155,000, 24-month 0% note. Athena uses the straight-line method of amortization.

Required:

  1. Record the borrowing in Athena’s journal.
  2. Prepare the adjusting entry for December 31, 2020.
  3. Prepare the entries to recognize the 2021 interest expense and repayment of the note on December 31, 2021

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement 1:

To prepare:

The journal entry to record the borrowing.

Explanation

The journal entry to record the borrowing is explained as follows:

Athena Corporation
Journal Entries
Date Account Titles Debit Credit
Jan...
To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement 2:

To prepare:

The adjusting entry for Dec. 31, 2020.

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement 3:

To prepare:

The journal entries to record the interest expense and repayment of note.

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