Assume that on January $1,$ Eclipse Corp. received a five$-$month, $$10,000$ zero$-$interest$-$bearing note from Galaxy Ltd$.$ The amount

of cash lent to Galaxy Ltd$.,$ which is equal to the present value, is $$7,835($rounded$),$ resulting in a discount. Galaxy Ltd$.\text{'}$s year$-$end

is December $31.$ The discount $($implied interest$)$ is amortized straight$-$line annually.

Discount on Notes Payable is a contra account to Notes Payable and therefore is subtracted from Notes Payable on the balance

sheet.

NOTE: Even though the interest rate is not stated, the implied interest rate can be derived because the cash amounts lent and received are both

known. In most cases, the transaction between the issuer and acquirer of the note is at arm's length, so the implicit interest rate would be a reasonable

a$.$ Prepare the journal entries to record the initial

transaction and subsequent entries on Galaxy's books.