On December 31, 2017, East Race Kayak Club decided to borrow $20,000 for two years. The Bend
Question:
On December 31, 2017, East Race Kayak Club decided to borrow $20,000 for two years. The Bend Bank currently is charging a 10 percent effective annual interest rate on similar loans.
REQUIRED:
a. Assume that the club borrows $20,000 and signs a two-year note with a 10 percent stated annual interest rate. What would be the face amount of the note payable?
b. Assume that the club borrows $20,000 and signs a two-year note with a stated annual interest rate of zero. What would be the face amount of the note payable?
c. Prepare the journal entry to record the note payable, assuming that the club signs
(1) the note in (a).
(2) the note in (b).
d. Prepare the entries necessary on December 31, 2019, assuming that the club signs
(1) the note in (a) (interest payable on December 31).
(2) the note in (b).
Step by Step Answer:
a The present value of the future cash flows of this note equals 20000 Since the effective rate of 1...View the full answer
Related Video
A journal entry is an act of keeping or making records of any transactions either economic or non-economic. Transactions are listed in an accounting journal that shows a company\'s debit and credit balances. The journal entry can consist of several recordings, each of which is either a debit or a credit
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