Question

Patnon Plastics needs some cash to finance expansion. Patnon issued the following debt to acquire the cash:
1. A five-year note with a stated interest rate of zero, a face value of $20,000, and an effective interest rate of 10 percent.
2. An eight-year note with an annual stated rate of 8 percent and a face value of $35,000. Interest is paid annually on December 31. The effective interest rate is 10 percent.
3. A ten-year note with an annual stated rate of 8 percent and a face value of $50,000. Interest is paid semi-annually on June 30 and December 31. The effective interest rate is 8 percent.
All three notes were issued on January 1, 2015.

REQUIRED:
a. Compute the proceeds from each of the three notes.
b. Prepare the entries to record the issuance of each note.
c. Prepare the entry to record the interest paid on June 30, 2015, on the ten-year note.
d. Prepare the entries to record the interest paid on December 31, 2015, on the eight-year note and the ten-year note.
e. Prepare the adjusting entry required on December 31, 2015, to recognize accrued interest on the five-year note.



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  • CreatedAugust 19, 2014
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