Explore BrainMass

Explore BrainMass

    Note Receivable with No Interest Stated Rate

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    On December 31, 2005 Ed Abbey Co performed environmental consulting services for Hayduke Co.
    Hayduke was short of cash and Abbey Co agreed to accept a $200,000 zero interest bearing note due December 31, 2007, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more credit worthy and has various lines of credit at 6%.

    A.) Prepare the journal entry to record the transaction of December 31, 2005, for the Ed Abbey Co.

    © BrainMass Inc. brainmass.com June 3, 2020, 10:19 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/note-receivable-no-interest-stated-rate-225955

    Solution Preview

    Because this transaction is a long term note, the time value of money must be considered. That means interest (or finance charges). A stated interest rate on a note is presumed to be reasonable and an arm's length transaction unless:

    1. No interest is stated
    2. The stated rate is ...

    Solution Summary

    The solution examines the issues, selects a position with explanation and presents the journal entry to record the transaction.

    $2.19

    ADVERTISEMENT