Kassia Co. accepted a zero interest bearing note from a customer for total consideration of $300,000 to be paid in 3 years on January 31, 2020. The going market interest rate was 5%, however, management determined this customer posed a slightly higher credit risk and figured their interest rate should be 7%.You are responsible for providing two separate journal entries: January 31, 2020, and December 31, 2020

Check the explanation

Explanation:

The journal entry:

Date                             Particulars               Amount DR      Amount CR

31 Jan 2020                 Notes Acc Dr.        $300000  

                                To Customer                                       $30000

( Being Zero interest Notes

Accepting from customer.)  

31. Dec 2020        Customer A/cc Dr.         $19250

                                 To Interest acc                                    $19250

( Being Interest on notes 300000 at 7% 11 month.)  

                  Interest A/cc DR.                         $19250  

                                To Profit & Loss                                       $19250

( Being Transfer to Profit & loss Account)