On January 1, 2011, Rapid River Realty sold a tract of land to three doctors as an investment. The land, purchased 10 years ago, was carried on Rapid River’s books at a value of $210,000. Rapid River received a non-interest-bearing note for $275,000 from the doctors. The note is due December 31, 2012. There is no readily available market value for the land, but the current market rate of interest for comparable notes is 11%.

Instructions:

1. Give the journal entry to record the sale of land on Rapid River’s books.

2. Prepare a schedule of discount amortization for the note with amounts rounded to the nearest dollar.

3. Give the adjusting entries to be made at the end of 2011 and 2012 to record the effective interest earned.