Question

On January 1, 2025, Crane Company issued a $1,241,400,5-year, zero-interest-bearing note to Cheyenne Bank. The note was issued to yield 11% annual interest. Unfortunately, during 2026 Crane fell into financial trouble due to increased competition. After reviewing all available evidence on December 31, 2026, Cheyenne Bank decided that the loan was impaired. Crane will probably pay back only $827,600 of the principal at maturity. Prepare journal entries for both Crane Company and Cheyenne Bank to record the issuance of the note on January 1,2025.

Answer 1

To record the issuance of the note on January 1, 2025, Crane Company would debit Notes Receivable and credit Discount on Notes Payable and Notes Payable. Cheyenne Bank would debit Note Receivable and credit Discount on Note Receivable and Cash.

Step-by-step explanation:

To record the issuance of the note on January 1, 2025, both Crane Company and Cheyenne Bank would make journal entries.

For Crane Company:

• Debit: Notes receivable - $1,241,400
• Credit: Discount on notes payable - $413,600
• Credit: Notes payable - $827,800

For Cheyenne Bank:

• Debit: Note receivable - $1,241,400
• Credit: Discount on note receivable - $413,600
• Credit: Cash - $827,800