Brief Exercise 133 Ivanhoe Corporation borrowed 61300 on Nov

Brief Exercise 13-3 Ivanhoe Corporation borrowed $61,300 on November 1, 2017, by signing a $62,710, 3-month, zero-interest-bearing note. Prepare Ivanhoe\'s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry. (If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit To record interest) To pay note)

Solution

Date Account titles and explanation Debit Credit November 1, 2017 Cash $       61,300 Notes Payable $       61,300 (To record amount borrowed by signing a note) December 31, 2017 Interest Expense $       937.09 Interest Payable $       937.09 (To record interest accrued at december 31) February 1, 2018 Interest Expense $       472.90 Interest Payable $       937.09 Notes Payable $       61,300 Cash $       62,710 (To record notes payment along with interest) Working: calculation of discount rate: Present Value = Future Value x (1+i)^-n Where, 61300 = 62710*(1+i)^-3 i ?                                                                                       0.9775 = (1+i)^-3 n 3 0.9775^(1/-3) = 1+i 1.007614506 = 1+i i = 0.00761451 or, monthly interest rate = 0.76% Annual Interest rate = 9.14% Notes Amortization: Date Beginning Amount Interest expense Ending Amount November 30, 2017                                                                                 61,300.00            466.77 61,766.77 December 31, 2017                                                                                 61,766.77            470.32 62,237.09 January 31, 2018                                                                                 62,237.09            472.90 62,710.00 Total        1,410.00 Less: Interest for 2 months   (466.77+470.32)            937.09