ISSUANCE AND INTEREST AMORTIZATION FOR ZERO COUPON NOTE (STRAIGHT LINE)
Kerwin Company borrowed $10,000 on a two-year, zero coupon note. The note was issued on December 31, 2008. The face amount of the note, $12,544, is to be paid at maturity on December 31, 2010.
Required:
1. Allocate the interest of $2,544 to the two one-year interest periods, using straightline interest amortization.
2. Prepare the entries to recognize the borrowing, the first year's interest expense, and the second year's interest expense plus redemption of the note at maturity.