(Notes Receivable with Unrealistic Interest Rate) On December 31, 2012, Ed Abbey Co. performed

(Notes Receivable with Unrealistic Interest Rate) On December 31, 2012, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to

accept a $200,000 zero-interest-bearing note due December 31, 2014, as payment in full. Hayduke is some- what of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%.

Instructions

(a) P r epa r e the journal entry to r eco r d the transaction of December 31, 2012, for the Ed Abbey Co.

(b) Assuming Ed Abbey Co.’s fiscal yea r -end is December 31, p r epa r e the journal entry for December

31, 2013.

(c) Assuming Ed Abbey Co.’s fiscal yea r -end is December 31, p r epa r e the journal entry for December

31, 2014.

 

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