Question

Brief Exercise 7-8

Tony Acrobats lent $25,972 to Donaldson, Inc., accepting Donaldson’s 2-year, $32,000, zero-interest-bearing note. The implied interest rate is 11%.

Prepare Tony’s journal entries for the initial transaction, recognition of interest each year, and the collection of $32,000 at maturity. (Round answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
1.
	(To record the initial transations)
2.
	(To record the recognition of interest in year one)
3.
	(To recognize the interest in year 2)
4.
	(To record the collection of the note)

SHOW LIST OF ACCOUNTS Accounts Payable Accounts Receivable Advertising Expense Allowance for Doubtful Accounts Bad Debt Expense Cash Cash Over and Short Due from Factor Due to Customer Discount on Notes Payable Discount on Notes Receivable Freight-In Freight-Out Gain on Disposal of Land Interest Expense Interest Payable Interest Receivable Interest Revenue Inventory Land Loss on Sale of Receivables Miscellaneous Expenses No Entry Notes Payable Notes Receivable Office Expense Owner's Drawings Petty Cash Postage Expense Purchase Discounts Recourse Liability Sales Discounts Sales Discounts Forfeited Sales Revenue Service Revenue Supplies Supplies Expenses Unearned Sales Revenue

Answer 1

No.	Account Titles and explanation	Debit	credit
1	Note receivable	32000
	Cash		25972
	Premium on note receivable		6028
2	Premium on notes receivable	3031
	Interest revenue		3031
3	Premium on notes receivable	3031
	Interest revenue		3031
4	cash	32000
	Notes receivable		32000