Ivanhoe Corporation issued a 5year 71000 zerointerestbearing

Ivanhoe Corporation issued a 5-year, $71,000, zero-interest-bearing note to Brown Company on January 1, 2017, and received cash of $35,300. The implicit interest rate is 15%.

Prepare Ivanhoe’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.

Solution

Journal entries: Date Accounts title and explanations Debit $ Credit $ jan 1 2017 Cash Account Dr. 35300      Bonds payable Account 35300 Dec31 2017 Interest expense Account Dr. (35300*15%) 5295      Bonds payable Account 5295