On December 31, 2011, Hurly Co. performed environmental consulting services for Cascade Co. Cascade was short of cash, and Hurly Co. agreed to accept a $300,000 zero-interest-bearing note due December 31, 2013, as payment in full. Cascade is somewhat of a credit risk and typically borrows funds at a rate of 10%. Hurly is much more creditworthy and has various lines of credit at 6%.
Instructions
(a) Prepare the journal entry to record the transaction of December 31, 2011, for the Hurly Co.
(b) Assuming Hurly Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2012.
(c) Assuming Hurly Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2013.
(d) Assume that Hurly Co. elects the fair value option for this note. Prepare the journal entry at December 31, 2012, if the fair value of the note is $295,000.