st-bearing note due in 4 years. Because the note was zero-interest-bearing, Sage Furniture agreed to sell furniture to this customer at lower than market price. A 9% rate of interest is normally charged on this type of loan. a - Prepare the journal entry to record this transaction. b - Determine the amount of interest expense to report for 20
st-bearing note due in 4 years. Because the note was zero-interest-bearing, Sage Furniture agreed to sell furniture to this customer at lower than market price. A 9% rate of interest is normally charged on this type of loan. a - Prepare the journal entry to record this transaction. b - Determine the amount of interest expense to report for 20
Chapter13: Long-term Liabilities
Section: Chapter Questions
Problem 1PA: On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10%...
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On January 1, 2025, Sage Furniture borrowed $5,900,000 (face value) from Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Sage Furniture agreed to sell furniture to this customer at lower than market price. A 9% rate of interest is normally charged on this type of loan.
a - Prepare the
b - Determine the amount of interest expense to report for 2025.
Expert Solution
Step 1
Answer :
a) Journal entry :
| Date | General Journal | Dr. | Cr. |
| 1/1/2025 | Cash | $5900000 | |
| Discount on bond payable | $1,720,263 | ||
| Notes payable | $5900000 | ||
| Unearned revenue | $1,720,263 | ||
| (To record note) |
Calculation of PV of the note :
| Face value of the note | 5900000 |
| PV factor at 9%,4 years | 0.70843 |
| PV of note | 4,179,737 |
| Discount on note payable (5,900,000-4,179,737) | 1,720,263 |
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