Prepare the entry to record the refinancing

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Question - On August 31, 2020, Red Leaf Corp. paid the Montreal Dominion Bank part of an outstanding $300,000 long-term 10% note payable obtained one year earlier (August 31, 2019), by paying $180,000 plus $18,000 interest. In order to do this, Red Leaf used $51,211 cash and signed a new one-year, zero-interest-bearing $160,000 note discounted at 9% by Montreal Dominion Bank (i.e., the bank issued a note at a discount designed to provide a 9% return over the one year period).

Required -

1. Prepare the entry to record the refinancing.

2. Prepare the adjusting entry at December 31, 2020 in connection with the new zero interest bearing note.

Reference no: EM133105838

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