Lin Du Corp lent 30 053 to Prefax Ltd accepting Prefax s
Lin Du Corp. lent $30,053 to Prefax Ltd., accepting Prefax's $40,000, three-year, zero-interest-bearing note. The implied interest is 10%.
(a) Prepare Lin Du’s; journal entries for the initial transaction, recognition of interest each year assuming use of the effective interest method, and the collection of $40,000 at maturity.
(b) Use time value of money tables, a financial calculator, or Excel functions to prove that the note will yield 10%.
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