Question

Ayayai Corporation issued a 3-year, $58,000,5% note to Blossom Company on January 1, 2017, and received an excavator that normally sells for $53,031. The note requires annual interest payments each December 31. The market rate of interest for a note of similar risk is 9% Prepare Ayayai's journal entries for (a) the January 1 issuance and (b) the December 31 interest. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter for the amounts.) Account Titles and Explanation Credit (a) Debit (b)

Answer 1

Solution:

Below is the journal entries as required:

Date Accounts & explanation 1-Jan Excavator Discount on notes payable Notes payable (Note issue recorded) Debit Credit Working $53,031.00 $ 4,969.00 (58,000 -53,031) $ 58,000.00 $ 4,772.79 31-Dec Interest expense Discount on notes payable Cash (Interest on Year end recorded)) (53,031 * 9%) $ 1,872.79 (4772.79 - 2900) $ 2,900.00 (58000*5%)