Question

Dold Acrobats lent \(16,529 to Donaldson, Inc., accepting Donaldson’s 2-year, \)20,000, zero-interest-bearing note. The implied interest rate is 10%. Prepare Dold’s journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity.

Short answer

Both sides of the Journal total$43,471.

Step-by-step solution

Definition of Maturity Date

The specified date on which the loan due will be paid along with any accrued interest is the maturity date.

Journal Entries

Date	Accounts and Explanation	Debit $	Credit $
1	Note receivable	$20,000
	Discount on note receivable		$3,471
	Cash		$16,529
2	Discount on note receivable	$1,653
	Interest revenue$\left(\$16529\times 10\%\right)$		$1,653
3	Discount on note receivable$\left(\left(\$16529+\$1,653\right)\times 10\%\right)$	$1,818
	Interest revenue		$1,818
4	Cash	$20,000
	Note receivable		$20,000
		$43,471	$43,471