Problem:
On October 1, 2013, King Company issued to Nations Bank a $600,000, 8-month, noninterest-bearing note. Interest was discounted by the bank at a 12% discount rate.
Required:
Question 1: Prepare the appropriate journal entry by King to record the issuance of the note.
Question 2: Determine the effective interest rate.
Question 3: 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 King.
Question 4: Prepare the appropriate journal entry on December 31, 2013, to accrue interest expense on the note described in number 3 for the 2013 financial statements.
Note: Please show how to work it out.