On November 1, 2013, a $216,000, 9-month, nonintrest bearing note is issued at a

Question

                    On November 1, 2013, a $216,000, 9-month, nonintrest bearing note is issued at a 10% discount rate.                 

                    Prepare the appropriate journal entry to record the issuance of the note.                 

                    1. Determine the effective intrest rate                 

                    2. Prepare the appropriate journal entry on December 31,2013, to record intrest on the note for the 2013 financial statements                 

                    3. Prepare the appropriate journal entry(s) on July 31,2014, to record intrest and the payment of the note.
                

Explanation / Answer

Interest portion=216000*10%

=$21600

Hence interest rate shall be=21600/(216000-21600)*100

=11.11%

Now effective interest rate shall be=(1.1111)^12/9

=11.10%

31 Dec Interest...Dr 21600

To Interest receivable 21600

31 July Cash....Dr 216000

To interest 21600

To bond 194400

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