On December 31, 2011, East Race Kayak Club decided to borrow $20,000 for two years. The Bend Bank currently is charging a 10 percent effective annual interest rate on similar loans.
REQUIRED:
a. Assume that the club borrows $20,000 and signs a two-year note with a 10 percent stated annual interest rate. What would be the face amount of the note payable?
b. Assume that the club borrows $20,000 and signs a two-year note with a stated annual interest rate of zero. What would be the face amount of the note payable?
c. Prepare the journal entry to record the note payable, assuming that the club signs
(1) the note in (a).
(2) the note in (b).
d. Prepare the entries necessary on December 31, 2013, assuming that the club signs
(1) the note in (a) (interest payable on December 31).
(2) the note in (b).