Recording Entries for Interest-Bearing Note Payable

Fern Company purchased goods on January 1, 2020, and issued a two-year, $2,500 note with a 5% stated rate. The fair value of the goods is $2,366. The note requires annual interest payments on December 31. The market rate of interest appropriate for this note is 8%. Provide journal entries to be made at each of the following dates.

a. January 1, 2020, for issuance of the note.

b. December 31, 2020, for the interest payment.