Final answer:
A $102,000 zero-interest bearing note issued by Landscape will show a debit of $100,000 to cash and a $102,000 credit to notes payable, with a debit to discount on notes payable for $2,000. On the balance sheet, cash will increase by $100,000, and notes payable will be listed at $102,000 as a current liability, with the discount amortized over the note's term.
Step-by-step explanation:
The student asked about the journal entry on March 1 and the balance sheet presentation when Landscape issued a $102,000, 4-month zero-interest bearing note to Castle National Bank with a present value (PV) of $100,000.
On March 1, the journal entry to record the issuance of the note would be:
- Debit: Cash $100,000
- Credit: Notes Payable $102,000
- Debit: Discount on Notes Payable $2,000
This entry reflects the cash received from the bank and the establishment of a liability for the note payable, including the discount which represents the interest cost over the life of the note.
The balance sheet on March 1 will show Cash increasing by $100,000 under current assets and a Notes Payable of $102,000 under current liabilities. The $2,000 difference, representing the discount, will be amortized over the 4-month life of the note.