Question

Samson Corporation issued a 4-year, $75,000, zero-interest-bearing note to Brown Company on January 1, 2020, and received cash of $47,664. The implicit interest rate is 12%.
Prepare Samson’s journal entries for:
(a) the January 1 issuance and (b) the December 31 recognition of interest.

Answer 1

Answer:

Samson’s journal entries for:

(a) The January 1 issuance of Note payable

Dr.     Cash                  47,664

Cr.     Note Payable    47,664

(b) The December 31 recognition of interest

Dr.     Interest Expense   5,720

Cr.     Interest Payable    5,720

Explanation:

Interest Calculation for the year

47,664 X 12% = 5,720