On October 1, 2009, Home Builders Company issued a $600,000, 8-month, noninterest-bearing note to the bank. Interest was discounted at a 12% discount rate.
Required:
1) Prepare the appropriate journal entry by Home Builders 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 Home Builders.
4) Prepare the appropriate journal entry on December 31, 2009, to accrue interest expense on the note described in 3. for the 2009 financial statements.

Question

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The Answer of On October 1, 2009, Home Builders Company issued a $600,000, 8-month, noninterest-bearing note to the bank. Interest was discounted at a 12% discount rate.
Required:
1) Prepare the appropriate journal entry by Home Builders 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 Home Builders.
4) Prepare the appropriate journal entry on December 31, 2009, to accrue interest expense on the note described in 3. for the 2009 financial statements.

On October 1, 2009, Home Builders Company Issued a $600,000