. On December 31, 2020 Big Eric's Inc. provided service to Chives Nova Scotia, accepting a five percent, four-year promissory note having a maturity value of $800,000 (interest payable annually on December 31). Big Eric's pays 6 percent for its borrowed funds. Chives, however, who has experienced financial difficulty in the current market conditions and is considered a higher risk, pays 8 percent for its borrowed funds.

Instructions

(a)Prepare the journal entries to record the transaction on the books of Big Eric's Inc.at December 31, 2020. (Assume that the effective interest method is used.)

b) Make all appropriate entries for 2021on the books of Big Eric's Inc.