Issuance and Interest Amortization for Zero Coupon Note (Straight Line)

Kerala Company borrowed \(\$ 10,000\) on a two-year, zero coupon note. The note was issued on December 31, 2018. The face amount of the note, \(\$ 12,544\), is to be paid at maturity on December 31,2020 . This company uses the straight line method of amortization.

\section*{Required:}

1. Allocate the interest of \(\$ 2,544\) to the two one-year interest periods, using straight-line interest amortization.

2. Prepare the entries to recognize the borrowing, the first year's interest expense, and the second year's interest expense plus redemption of the note at maturity.

OBJECTIVE 24 Exercise