2. On January 1, 20X1, the company received a $10,000 three-year note bearing interest at 10% annually
Question:
2. On January 1, 20X1, the company received a $10,000 three-year note bearing interest at 10% annually for sales. The annual interest is received at each December 31. The market interest rate is 12% annually. September 30 is the company's reporting date. The company used the effective interest method to account for this long-term note receivable.
Cash Received ($) Interest Income ($) Discount Amortized ($) Carrying Amount ($)
Jan 1, 20x1 9,520
Dec 31, 20x1 1,000 1,142 142 9,662
Dec 31, 20x2 1,000 1,159 159 9,821
Dec 31, 20x3 1,000 1,179 179 10,000
Required (11 marks):
- Prepare journal entries on January 1, 20X1, September 30, 20X1, and December 31, 20X1 (Note: round to the nearest dollar).
- How much is this note measured on September 30, 20X2? (Note: round to the nearest dollar).