Prepare the journal entry to record the dishonored note

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Question - On January 1, 2021, Joy Company sold used equipment and received a non-interest bearing note requiring payment of P2,000,000 principal on December 31, 2022. The prevailing rate of interest for this type of note at the date of issuance is 10%. On January 1, 2022, to augment the company's cash requirement, Joy Company discounted the note to a financial institution at 14%. On December 31, 2022, the factor collected in full the notes receivable. The discounting is accounted for as a secured borrowing.

Required -

1. Prepare the necessary journal entry to record the above transactions.

2. How much is the carrying value of the notes receivable at December 31, 2021?

3. Assuming the customer failed to pay the notes on December 31, 2022, prepare the journal entry to record the dishonored note.

Reference no: EM133140397

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