Journalize these two transactions:

Question

Sep. 15 Purchased land by issuing a $670,000, 90-day note to Zahorik Co., which discounted it at 9%. Assume a 360-day year.

 

Dec. 14 Journalized the payment of the September 15 note at maturity.

 

Answer 1

dr . .Land  . . .670,000

dr. .discount on note payable. . 14,743.28

cr . . . . . .Notes payable . . .670,000

Discounted 90-day note at 9%

.09 * 90/360 = .0225 for 90 days

Present value of the note = $670,000 / 1.0225 = $655,256.72

The discount is $670,000 - $655,256.72 = $14,743.28

 

dr. Notes payable  . . . .670,000

dr. Interest expense . . 14,743.28

cr. . . . . . Discount on notes payable . . . 14,743.28

cr. . . . . . Cash . . . . 670,000