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aal300m
Mar 1, 2009, 12:12 PM
Non-Interest Bearing Note

On January 1, 2009, Ellen Green Company made the following acquisition:

Purchased land having a fair market value of $200,000 by issuing a 5-year, non interest bearing note in the face amount of $275,000. the company normally pays 11% for funds in borrows from it bank.

Prepare the journal entry to record the purchase the land and the issuance of the note

Prepare the journal entry to record the interest expense for 2009.

I am confused with this question I need help to get started please help
pready
Mar 3, 2009, 03:25 PM
In a non interest bearing note, the interest is withheld up-front by the lender which means that you do not receive the full face value of the note. You have to cmpute the interest for the face value, then deduct that amount from the face value of the note to get the amount of cash actually received.