Blossom company receives a three year$13200 zero interest bearing note, and the related present value...
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Blossom company receives a three year$13200 zero interest bearing note, and the related present value with a market interest rate of 9% is $10192.78. the total discount of $3007.22 under the straight line method is amortized over the three year period in equal amounts each year. therefore, the annual amortization is $3007.22 / 3 or $1002.41.
Schedule of note discount amortization effective interest method 0% note discounted at 9%.
Date of issue - carrying amount of note $10192.78 End of year 1- cash received 0, interest income 917.35, discount amortized 917.35 and carrying amount of note 11110.13. End of year 2 - cash received 0, interest income 999.91, discount amortized 999.91 and carrying amount of note 12110.04. End of year 3 - cash received 0, interest income 1089.96, discount amortized 1089.96 and carrying amount of note 13200. Therefore total cash received 0, total interest income 3007.22 and total discount amortized 3007.22.
Prepare the entry to record the annual interest for years 1 and 2 under the straight line method and the effective interest method
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