Smith Corporation operates a retail clothing store. On May 1, 2017 Smith purchases a new truck having a list price of $40,000 by making a down payment of $5,000 cash and issuing a zero-interest-bearing note with a face amount of $35,000. The note is due May 1, 2018. Smith would normally have to pay interest at a rate of 7% for such a borrowing, and the dealership has an incremental borrowing rate of 5%. Instructions: Prepare the necessary entries on May 1 and December 31 assuming the company has a calendar year end and uses the straight-line method of amortization.

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