Intermediate Accounting Chapter 14 RE. 14-15

On January 2, 2016, Jennings Company purchases machinery and equipment and borrows $200,000 on a 5-year non-interest-bearing note. The principal of $200,000 will be paid at the maturity date of December 31, 2020. To place a fair value on the transaction, the accountant will impute an interest rate and use that rate to compute the present value of the note. Required: Assuming that an 8% interest rate is applicable, record the journal entry for interest expense for the year ended December 31, 2016.