Question

Dodge City Products borrowed $100,000 cash by issuing a 36-month, $120,880 zero coupon note on January 1, 2021. The note matures on December 31, 2023.

Required:

1. Prepare the entry to recognize the issuance of the note.

2021 Jan. 1	Cash
	Discount on Notes Payable
	Notes Payable
	Record issuance of note at discount

2. Prepare the adjustments to recognize 2021 and 2022 interest.

2021 Dec. 31	Interest Expense
	Discount on Notes Payable
	Record interest expense
2022 Dec. 31	Interest Expense
	Discount on Notes Payable
	Record interest expense

3. Prepare the entry to recognize 2023 interest and repayment of the note at maturity.

2023 Dec. 31
	Record interest expense
2023 Dec. 31
	Record repayment of note principal

Answer 1

1)Journal Entries (Amounts in $)

Date	Account Titles and Explanations	Debit	Credit
2021 Jan. 1	Cash	100,000
	Discount on Notes Payable (120,880-100,000)	20,880
	Notes Payable		120,880
	(To record the issuance of note at discount)

2)Journal Entries (Amounts in $)

Date	Account Titles and Explanations	Debit	Credit
2021 Dec. 31	Interest Expense	6,960
	Discount on Notes Payable		6,960
	(To record the interest expense)
2022 Dec. 31	Interest Expense	6,960
	Discount on Notes Payable		6,960
	(To record the interest expense)

Discount to be amortized every year = Total Discount on Notes Payable/3 years

36months=3yrs

= $20,880/3 years = $6,960per year

3) Journal Entries (Amounts in $)

Date	Account Titles and Explanations	Debit	Credit
2023 Dec. 31	Interest Expense	6,960
	Discount on Notes Payable		6,960
	(To record the interest expense)
2023 Dec. 31	Notes Payable	120,880
	Cash		120,880
	(To record payment of note principal)