E14-18 (L03) (Imputation of Interest with Right) On January 1, 2017, Margaret Avery Co. borrowed and received $400,000 from a major customer evidenced by a zero-interest-bearing note due in 3 years. As consideration for the zero-interest-bearing feature, Avery agrees to supply the customers inventory needs for the loan period at lower than the market price. The appropriate rate at which to impute interest is 8%.

Instructions .

(a) Prepare the journal entry to record the initial transaction on January 1, 2017. (Round all computations to the nearest dollar.) .

(b) Prepare the journal entry to record any adjusting entries needed at December 31, 2017. Assume that the sales of Averys product to this customer occur evenly over the 3-year period.