Muszynski
Corporation issued a $75,000, four-year, zero-interest-bearing note to Samson
Corp. on January 1, 2012, and received $47,664 cash. The implicit interest rate
is 12%.
(a)
Prepare Muszynski’s journal entry for the January 1 issuance.
(b)
Prepare Muszynski’s journal entry for the December 31 recognition of interest.
(c)
Assume that the effec- tive interest of 12% had not been provided in the data.
Prove the effective interest rate of 12% using a financial calculator or
computer spreadsheet function.
(d)
Prepare an effective-interest amortization table for the note.
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(a)
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Cash ...............................................................................................
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47,664
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|
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Notes Payable.....................................................................
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47,664
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|
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(b)
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Interest
Expense ($47,664 X 12%)..............................................
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5,720
|
|
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Notes Payable.....................................................................
|
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5,720
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(c)
Using a financial Calculator:
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FV =
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$(75,000)
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|
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n =
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4
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PMT =
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0
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i =
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12%
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Calculate
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PV =
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$47,664
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|
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(d)
Schedule of Discount Amortization
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|||||||
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Effective Interest Method (12%)
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|||||||
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12%
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Interest
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Discount
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Carrying
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Date
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|
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Expense
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Amortized
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Amount
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|
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Jan. 1
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2012
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|
|
|
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$47,664.00
|
|
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Dec. 31
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2012
|
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$5,719.68
|
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$5,719.68
|
53,383.68
|
|
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Dec. 31
|
2013
|
|
6,406.04
|
|
12,125.72
|
59,789.72
|
|
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Dec. 31
|
2014
|
|
7,174,77
|
|
19,300.49
|
66,964.49
|
|
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Dec. 31
|
2015
|
|
* 8,035.51
|
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27,336.00
|
75,000.00
|
|
|
|
|
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$27,336.00
|
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$27,336.00
|
|
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* rounded
