Final answer:
Landscape records the issuance of a zero-interest-bearing note with a present value of $100,000 by debiting cash and discount on notes payable, and crediting notes payable. Monthly interest expense is recognized by amortizing the discount over the life of the note, with an entry of $500 per month.
Step-by-step explanation:
The transaction involving Landscape's issuance of a $102,000, four-month, zero-interest-bearing note to Castle National Bank, where the present value is recorded at $100,000, reflects a discount on the note payable. To record this transaction, Landscape would debit cash and discount on notes payable for $100,000 and credit notes payable for $102,000, thereby recognizing liability for the full-face value of the note. Over the four months, the discount, which represents the interest expense, should be amortized.
To calculate one month's worth of interest expense, you divide the $2,000 discount by the four months of the note's term, resulting in a monthly interest expense of $500. After one month, Landscape would then debit interest expense for $500 and credit discount on notes payable for $500. This amortization increases the carrying amount of the note towards its face value over the life of the note.