On January 1, 2008, Carpet Company loaned \($100,000\) to its supplier, Loom Corporation, which was evidenced by a note, payable in five years. Interest at 5% is payable annually with the first payment due on December 31, 2008. The going rate of interest for this type of loan is 10%. The parties agreed that Loom will meet Carpet’s inventory needs for the loan period at favorable prices. Assume that the present value (at the going rate of interest) of the \($100,000\) note is \($81,000\) at January 1, 2008.
Required:
1. Show the journal entry that Carpet would make to record interest and the receipt of cash at December 31, 2008.
2. What is the nature of the account that arises as a consequence of the difference between the 5% cash interest and the effective yield of 10%?