[Topsya]

Hey guys!

Could you please help me to make a Journal Entry for the following situation:

On January 1, 2004, Dorr Company borrowed $200,000 from its major customer, Pine Corporation, evidenced by a note payable in 3 years. The promissory note did not bear interest. Dorr agreed to supply Pine’s inventory needs for the loan period at favorable prices. The going rate of interest for this type of loan is 14%. Assume that the present value (at the going rate of interest) of the $200,000 note is $135,000 at January 1, 2004. What amount of interest expense should be included in Dorr’s 2004 income statement?

is it

Dr. Cash $200,000

Cr. N/P $200,000

OR is it

Dr. Cash $135,000

Dr. Discount on N/P $65,000

Cr. N/P $200,000

oh, and here is another one

I am also struggling to make a Journal Entry

Leaf Co. purchased from Oak Co. a $20,000, 8%, 5-year note that required five equal annual year-end payments of $5,009. The note was discounted to yield a 9% rate to Leaf. At the date of purchase, Leaf recorded the note at its present value of $19,485. What should be the total interest revenue earned by Leaf over the life of this note?

THANKSSSS

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[NYCaccountant]

For the second question, i'm thinking maybe $5,560? The interest over the life of the loan will be 5,045 and once you amortize the discount, you'll end up with 5,560.

Here is the journal entry:

DR. Note receivable 20,000

CR.Discount on note 515

Cr. Cash 19,485

This is assuming when you purchased the note you paid the present value

of it in cash. The question never states what was exactly paid in cash.

For the first question, I would use this Entry Below:

DR. Cash – 135,000

DR. Discount 65,000

CR. Note payable 200,000

DR. Cash 65,000

CR. Unearned Revenue 65,000

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Author]

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