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22 May, 00:48

Lyric Company issued a 90-day zero-interest-bearing note with a face amount of $3,000. The present value of the note is $2,855. The journal entry to record the issuance of the note will include

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  1. 22 May, 04:04
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    Cash ... Dr $2,855

    Discount on notes payable $145

    Notes payable $3,000

    (Notes issued at discount)

    Explanation:

    Zero interest note, as the name suggests are issued with no interest charged on amount due. As such, notes are issued at a price that is lesser than face value. Difference between face value and present value of note represent discount on notes payable.

    Journal entry to record issue of notes payable:

    Particulars Debit Credit

    Cash $2,855

    Discount on notes payable $145

    Notes payable $3,000

    (Notes issued at discount)

    Cash is debited with present value of note of $2,855 as notes are issued less than face value.
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