Homework Answers
Answer:
Cash received:
Cash received = Face value x Present value factor (4%, 5 years)
= $150,000 x 0.82193
= $123,289
Journal Entries:
| Date | Account title and Explanation | Debit | Credit |
| January 1 | Cash | $123,289 | |
| Notes payable | $123,289 | ||
| [To record issuance of notes] | |||
| Dec.31 | Interest expense* | $4,932 | |
| Notes payable | $4,932 | ||
| [To record interest expense] |
*Interest expense = Carrying amount x Market rate
=$123,289 x 4%
=$4,932
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