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Exercise 14-18 On January 1, 2017, Oriole Co. borrowed and received $508,000 from a major customer evidenced by a zero-intere
(9) Dec 2017
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Journal entries:

Date Account title and explanation Debit Credit
Jan 1,2017 Cash $508,000
Discount on notes payable (508,000 x 8% x 3 years) $121,920
Notes payable $508,000
Unearned sales revenue $121,920
[To record issuance of notes payable]
Dec 31,2017 Interest expense [508,000 x 8%] $40,640
Discount on notes payable $40,640
[To record interest expense]
Dec 31,2017 Unearned sales revenue [508,000 x 8%] $40,640
Sales revenue $40,640
[To record unearned sales revenue]

Explanation:

Interest is compensated by discount on sales. Hence, discount on notes payable is written of by interest expense over 3 years and Unearned sales revenue written off by Sales revenue over 3 years.

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