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

question 55

Essay

Amortization of discount under the straight-line and effective interest methods
On January 1, 2020, 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, 2020.
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, 2020.

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Definitions:

Construct Validity

The extent to which a test or instrument measures the theoretical construct it is intended to measure.

Criterion-related Validity

A measure of how well one variable or test predicts an outcome based on information from other variables.

Investing Activities

Transactions involving the purchase and sale of long-term assets and investments, part of a company's cash flow statement.

Cash Flow Statement

This financial document provides a comprehensive view of a company's cash inflows from operations and investments, alongside the expenditures on business and investment actions within a designated timeframe.