Notes receivable with unrealistic interest rate


On December 31, 2010, Tran Co. performed environmental consulting services for Hayden Co. Hayden was short of cash, and Tran Co. agreed to accept a $100,000 zero-interest-bearing note due December 31, 2012, as payment in full. Hayden is some what of a credit risk and typically borrows funds at a rate of 15%. Tran is much more creditworthy and has various lines of credit at 8%.

Instructions:

(a) Prepare the journal entry to record the transaction of December 31, 2010, for Tran Co.

(b) Assuming Tran Co.'s fiscal year-end is December 31, prepare the journal entry for December 31, 2011.

(c) Assuming Tran Co.'s fiscal year-end is December 31, prepare the journal entry for December 31, 2012.

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Accounting Basics: Notes receivable with unrealistic interest rate
Reference No:- TGS060754

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