On January 1, Amil Corp. lent $37,000 to Windsor Ltd., accepting Windsor's $49,247, three-year, zero-interest-bearing note. The implied interest is 10%. (a) Prepare Amil's journal entries for the initial transaction, recognition of interest each year assuming use of the effective interest method, and the collection of $49,247 at maturity. (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 O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation Debit Credit (To record initial transaction) (To record interest income in the first year) (To record interest income in the second year) (To record interest income in the third year) (To record collection at maturity)
On January 1, Amil Corp. lent $37,000 to Windsor Ltd., accepting Windsor's $49,247, three-year, zero-interest-bearing note. The implied interest is 10%.
(a) Prepare Amil's
|
Account Titles and Explanation |
Debit |
Credit |
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(To record initial transaction)
(To record interest income in the first year)
(To record interest income in the second year)
(To record interest income in the third year)
(To record collection at maturity)
Zero interest-bearing note refers to a note that does not pay interest like a normal note. The interest payments are not made in the case of zero interest-bearing notes because these notes are issued at a discount but mature at the full amount. The interest earning refers to the difference between the issue price and maturity value.
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