On January 2, a local bookstore borrowed from a bank on a 1-year note. The face value

Question:

On January 2, a local bookstore borrowed from a bank on a 1-year note. The face value of the note was $80,000. However, the bank deducted its interest “in advance” at 5% of the face value.

Show the effects on the borrower’s records at inception and at the end of the year:

1. Using the balance sheet equation, prepare an analysis of transactions.

2. Prepare journal entries. Omit explanations.

3. What was the real rate of interest?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...