Question

Shlee Corporation issued a 4-year, $60,000, zero-interest-bearing note to Garcia Company on January 1, 2020, and received cash of $60,000. In addition, Shlee agreed to sell merchandise to Garcia at an amount less than regular selling price over the 4-year period. The market rate of interest for similar notes is 12%. Prepare Shlee Corporation's January 1 journal entry.

Answer 1

January 1, 2020

Dr Cash $60,000

Dr Discount on Bonds Payable $21,869

Cr Notes Payable $60,000

Cr Unearned Sales Revenue $21,869

Step-by-step explanation:

Preparation of Shlee Corporation's January 1 journal entry

First step is to calculate Find the Present value (PV) using financial calculator

N = 4 years

I/Y% = 12$

FV = $60,000

PMT = 0

PV =?

Hence,

PV =$38,131

Second step is to calculate the Discount on Bonds Payable for January 1, 2020

Discount on Bonds Payable =$60,000 −$38,131 Discount on Bonds Payable =$21,869

Now let prepare the Journal entry

January 1, 2020

Dr Cash $60,000

Dr Discount on Bonds Payable $21,869

($60,000 −$38,131)

Cr Notes Payable $60,000

Cr Unearned Sales Revenue $21,869

($60,000 −$38,131)