Kerwin Company borrowed $10,000 on a two-year, zero coupon note. The note was issued on December 31,

Question:

Kerwin Company borrowed $10,000 on a two-year, zero coupon note. The note was issued on December 31, 2008. The face amount of the note, $12,544, is to be paid at maturity on December 31, 2010.

Required:

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

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.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...