Final answer:
The student asked about recording a zero-interest-bearing note payable and its end-of-year adjusting entry. The entry on June 1, 2015, would record the cash received against the note payable. At the year-end on December 31, 2015, the entry would record the amortization of the discount on the note payable over the period since the note was issued using straight-line amortization.
Step-by-step explanation:
The student is asking how to record a zero-interest note payable and its related year-end adjusting journal entry. The subject of this question is business, specifically focusing on accounting principles. On June 1, 2015, AB Distributor would record the receipt of cash and the note payable as follows:
Debit Cash $309,524
Credit Notes Payable $309,524
The difference between the face value of the note and the cash received represents the discount on the note payable, which effectively is the interest of the loan. This discount is amortized over the life of the note.
As for the year-end adjusting entry on December 31, 2015, the company would need to recognize the discount amortized for 7 months (since the note was issued on June 1, 2015). Assuming straight-line amortization, the entry would be:
Debit Interest Expense $rac{325,000 - 309,524}{12} \times 7$
Credit Discount on Notes Payable $rac{325,000 - 309,524}{12} \times 7$
The exact dollar amount for the amortization would be computed by dividing the total discount by 12 months and then multiplying by the 7 months that AB Distributor has had the note payable for the year 2015.