On January 1, 2017, Teal Furniture Co. borrowed $6,100,000 (face value) from Gary Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Teal Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction.

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Business

Chris Diaz

25 April, 16:19

On January 1, 2017, Teal Furniture Co. borrowed $6,100,000 (face value) from Gary Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Teal Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction.

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Obrien · Answer 1

Dr Cash $6100000

Dr Discount on notes Payable $1933620

Cr Notes Payable $6100000

Cr Unearned Revenue $1933620

Discount on Notes Payable:

n=4

FV = 6100000

I = 10%

PV = $6100000 - ($6100000 * PVIF)

= $6100000 - ($6100000 * 0.68301) = $4166382