On October 1, 2016, Hill Company issued to Colbert Bank a $600,000, 8-month, noninterest-bearing note. Interest was discounted by the bank at a 12% discount rate.
Required:
a. Prepare the appropriate journal entry by Hill to record the issuance of the note.
b. Determine the effective interest rate.
c. Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Hill.
d. Prepare the appropriate journal entry on December 31, 2016, to accrue interest expense on the note described in part c. for the 2016 financial statements.