Kerala Company borrowed $10,000 on a two-year, zero coupon note. The note was issued on December 31, 2018. The face amount of the note, $12,544, is to be paid at maturity on December 31, 2020. This company uses the straight line method of amortization.

Required:

1. Allocate the interest of $2,544 to the two one-year interest periods, using straight-line interest amortization.

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2. Prepare the entries to recognize the borrowing, the first year's interest expense, and the second year's interest expense plus redemption of the note at maturity. For compound entries, for those boxes in which no entry is required, leave the box blank.

2018, Dec. 31	Cash
	Discount on Notes Payable
	Notes Payable
	(Record issuance of note at discount)
2019, Dec. 31	Interest Expense
	Discount on Notes Payable
	(Record interest expense)
2020, Dec. 31	Interest Expense
	Notes Payable
	Discount on Notes Payable
	Cash
	(Record interest expense and repayment of note principal)

Answer rating: 100% (QA)

Answer 1 Allocation of interest using straight line intere... View the full answer