Comparison of Simple and Compound Interest On June 30, 2010, Rolf Inc. borrowed $25,000 from its bank, signing an 8%, two-year note.

Required 1. Assuming that the bank charges simple interest on the note, prepare the journal entry Rolf will record on each of the following dates:

December 31, 2010 December 31, 2011 June 30, 2012 2. Assume instead that the bank charges 8% on the note, which is compounded semiannually. Identify and analyze the effect on the dates in part (1).

3. How much additional interest expense will Rolf have in part (2) than in part (1)?

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