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On January 1, 2020, Field Furniture borrowed $5,000,000 (face value) from Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Field Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan.

Required:
Prepare the journal entry to record this transaction and determine the amount of interest expense to report for 2020.

Respuesta :

akiran007

Answer:

Interest =  $ 500,000

Explanation:

Field Furniture

Journal Entries

Sr. No             Particulars                 Debit                    Credit

1                   Cash                           $5,000,000

                  Notes Payable                                      $5,000,000

Recording Of borrowing $5,000,000 (face value) from Sinise Co., a major customer, through a zero-interest-bearing note.

2.              Interest Expense         $ 500,000

                   Interest Payable                                    $ 500,000

Recording of Interest Expense at the End of 2020.

Calculation of Interest Expense

Interest = Principal Amount * Interest Rate

              $5,000,000 *10 %=   $ 500,000

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