On January 1 of Year 1, Jacobs Company sells land in return for a $8,000 note, issued by Andress Company. The note is a $8,000, 8%, annual interest-bearing note. Andress agrees to repay the $8,000 proceeds on December 31 of Year 2. The prevailing interest rate on similar notes is 11%. Assume that the cost of the land is equal to the fair value of the note.

A. Prepare entries for Jacobs on (1) January 1 of Year 1 for the sale of land and (2) December 31 of Year 1 for interest received on the note. Use the effective interest method to amortize the discount.

B. Prepare entries on December 31 of Year 2 to record (1) interest received on the note and (2) the settlement of the note.