On August 31, 2020, Red Leaf Corp. paid the Montreal Dominion Bank part of an outstanding $300,000 long-term 10% note payable obtained one year earlier (August 31, 2019), by paying $180,000 plus $18,000 interest. In order to do this, Red Leaf used $51,211 cash and signed a new one-year, zero-interest-bearing $160,000 note discounted at 9% by Montreal Dominion Bank (i.e., the bank issued a note at a discount designed to provide a 9% return over the one year period).

Required

a.Prepare the entry to record the refinancing.

b.Prepare the adjusting entry at December 31, 2020 in connection with the new zero interest bearing note.