Exercise 1

The following are selected 2016 transactions of Amador Corporation.

Sept. 1 Purchased inventory from Attiq Company on account for $125,000. Amador records purchases gross and uses a periodic inventory system.

Oct. 1 Issued a $125,000, 12-month, 12% note to Attiq in payment of account.

Oct. 1 Borrowed $125,000 from the Alkhawri Bank by signing a 12-month, zero-interest-bearing $142,000 note.

Instructions

Prepare journal entries for the selected transactions above.

Prepare adjusting entries at December 31. (Use straight-line amortization of the discount.)

Compute the total net liability to be reported on the December 31 balance sheet for:

the interest-bearing note.

the zero-interest-bearing note. (Use straight-line amortization.)