Question

Larkspur Corporation issued a 4-year, $81,000, zero-interest-bearing note to Brown Company on January 1, 2020, and received cash of $46,312. The implicit interest rate is 15%. Prepare Larkspur's journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest. (Round answers to O decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Date Account Titles and Explanation Debit Credit

Answer 1

Journal

Date	Account title	Debit	Credit
Jan. 1, 2020	Cash	46,312
	Discount on notes payable	34,688
	Notes payable		81,000
	(To record issued of zero interest notes payable)
Dec. 31, 2020	Interest expense	6,947
	Discount on notes payable		6,947
	(To record interest expense)

Par value of notes payable = $81,000

Cash received on note payable = $46,312

Discount on notes payable = Par value of notes payable - Cash received on note payable

= $81,000 - $46,312

= $34,688

Annual Interest expense = Cash received on note payable x Interest rate

= 46,312 x 15%

= $6,947

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