Determine the effective interest rate


Questions:

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:

1. Prepare the appropriate journal entry by King to record the issuance of the note.

2. Determine the effective interest rate.

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.

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.

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Accounting Basics: Determine the effective interest rate
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