On November 16, 2010, the Clear Glass Company borrowed $20,000 from First American Bank by issuing a 90 day, non interest bearing note. The bank discounted this note at 12% and remitted to Clear Glass Company the difference.
Required:
1. Prepare the journal entries of Clear Glass to record the preceding information, the related calendar year end adjusting entry, and payment of the note at maturity.
2. Show how the preceding items would be reported on the December 31, 2010 balance sheet.
3. What is Clear Glass Company's effective interest rate?