9. Debits and Credits for Notes receivable

Includes discounts on notes receivable, amortization of discount using effective interest method for both note with interest and zero interest bearing note. Also includes gain or loss on notes receivable recorded at fair value.

Entry to record issuance of notes receivable

Debit Notes Receivable, Credit Cash

Entry to recognize interest earned each year for a notes receivable

Debit Cash, Credit Interest Revenue

Entry to record notes receivable when there is a discount on notes receivable

Debit Notes receivable for face value of note, Credit Cash for amount after discount, Credit Discount on Notes Receivable for amount under face value of note (done by finding present value of principal and present value of interest and adding them together then subtracting from face value)

Entry to record receipt of annual interest and record amortization of the discount (effective interest method)

Debit Cash for cash to be received at the end of each year, Debit Discount on Notes receivable for amount of discount amortized, Credit Interest Revenue for full amount of interest revenue.

Entry to record note receivable and discount amount (zero interest bearing note)

Debit Notes Receivable for face value of the note, Credit Cash for Present value of the note (Calculate using Table 2 "Present Value of $1"), Credit Discount on Notes Receivable for difference between face value and present value of the note.

Entry to record interest revenue at the end of a year (zero interest bearing note)

Debit Discount on Notes Receivable for amount of discount amortized this year, Credit Interest Revenue calculated for same amount.

Gain on notes receivable that is recorded at fair value

Debit Notes receivable for amount of Gain (this is the amount of fair value above the carrying value), Credit Unrealized Holding Gain or Loss - Income for the same amount.

Loss on notes receivable that is recorded at fair value

Debit Unrealized Holding Gain or Loss - Income for amount of loss (This is the amount of fair value below the carrying value), Credit Notes Receivable for the same amount.