On January 1, 2017, Stellar Co. borrowed and received $517,000 from a major customer evidenced by a zero-interest-bearing note due in 4 years. As consideration for the zero-interest-bearing feature, Stellar agrees to supply the customer’s inventory needs for the loan period at lower than the market price. The appropriate rate at which to impute interest is 8%.

(a) Prepare the journal entry to record the initial transaction on January 1, 2017. 

(b) Prepare the journal entry to record any adjusting entries needed at December 31, 2017. Assume that the sales of Stellar’s product to this customer occur evenly over the 4-year period. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer rating: 100% (QA)

Journal Entries for Stellar Cos ZeroInterestBearing Note Transaction a Initial T... View the full answer