Peffer Financial loaned $9,000 to Slatten Brothers on December 1, 1996. The ninety-day note (both principal and interest) was due March 1 of the following year and had a stated annual interest rate of 8 percent. REQUIRED:

a. Prepare the journal entries on Peffer Financial’s books related to this note that were recorded on December 1, when the note was issued, on December 31, when financial state¬ ments were prepared, and March 1, when the note was paid in full assuming the follow¬ ing: (1) The note receivable is recorded at face value, and no discount is recognized. (2) The note receivable is recorded at face value plus interest, and a discount is recognized.

b. Does Method 1 affect the December 31 financial statements differently from Method 2? Explain your answer in terms of the effects on net income and current assets as well as in terms of general balance sheet and income statement disclosure.