Homework SoursePina Colada Corporation issued a 3year 64000 7 note to Bloss
Pina Colada Corporation issued a 3-year, $64,000, 7% note to Blossom Company on January 1, 2017, and received an excavator that normally sells for $53,731. The note requires annual interest payments each December 31. The market rate of interest for a note of similar risk is 9%.
Prepare Pina Colada’s journal entries for (a) the January 1 issuance and (b) the December 31 interest
Solution
Journal entries :
| Date | accounts & explanation | debit | credit |
| Jan 1 | Excavator | 53731 | |
| Discount on notes payable | 10269 | ||
| Notes payable | 64000 | ||
| (To record note issue) | |||
| Dec 31 | Interest expense (53731*9%) | 4835.79 | |
| Discount on notes payable | 355.79 | ||
| Cash (64000*7%) | 4480 | ||
| (To record interest) |
