Amortization of Discount Under the Straight-Line and Effective Interest Methods

Essay

Amortization of discount under the straight-line and effective interest methods On January 1, 2013, Ethiopia Corporation receives a four-year, $50,000 zero-interest bearing note in payment of goods sold.The present value of the note equals the agreed upon sales price of $32,936.55.Ethiopia is a privately held company and follows ASPE. Instructions
a)Assuming Ethiopia uses the straight-line method to amortize the note's discount, prepare the
journal entry to record the sale on January 1, and the interest accrual on December 31, 2013.
b)Assuming Ethiopia uses the effective interest method to amortize the note's discount,
prepare the journal entry to record the sale on January 1, and the interest accrual on
December 31, 2013.