Kassia Co. accepted a zero interest bearing note from a customer for total consideration of $300,000 to be paid in 3 years on January 31, 2020. The going market interest rate was 5%, however, management determined this customer posed a slightly higher credit risk and figured their interest rate should be 7%. You are responsible for providing two separate journal entries: January 31, 2020, and December 31, 2020

Question

Virginia Hunt

Business

29 September, 04:42

Kassia Co. accepted a zero interest bearing note from a customer for total consideration of $300,000 to be paid in 3 years on January 31, 2020. The going market interest rate was 5%, however, management determined this customer posed a slightly higher credit risk and figured their interest rate should be 7%. You are responsible for providing two separate journal entries: January 31, 2020, and December 31, 2020

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Answers (1)

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Gemma Monroe · Answer 1

Check the explanation

Explanation:

The journal entry:

Date Particulars Amount DR Amount CR

31 Jan 2020 Notes Acc Dr. $300000

To Customer $30000

(Being Zero interest Notes

Accepting from customer.)

31. Dec 2020 Customer A/cc Dr. $19250

To Interest acc $19250

(Being Interest on notes 300000 at 7% 11 month.)

Interest A/cc DR. $19250

To Profit & Loss $19250

(Being Transfer to Profit & loss Account)