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Samson Corporation issued a 4-year, $85,000, zero-interest-bearing note to Brown Company on January 1, 2014, and received cash of $48,599. The implicit interest rate is 15%.

Prepare Samson’s journal entries for (a) the January 1 issuance and (b) the December 31 recognition of interest.

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haseebkhuhro256

Answer:

Explanation:

first of all we need to identify the present value of laibility

v= 85000/(1+15%)^4

Pv = 48599 which is equal to cash recieved.

We need to perpare amotization schedule to recognize closing laibiltity carying amount and interst expense

Amortization schedule

Year Amount    Interest 15% Closing Amount

1        48599         7289.85    55888.85

2       55888.85 8383.33    64272.18

3       64272.18   9640.83    73913

4       73913.00413 11086.95   85000

Entries

Cash 48599

  Long term Liability 48599

To record the long term laibility

Interest Expense 7289.85

          Laibilty            7289.85

To record the interest expense on the laibility

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