XY Makes a loan to TZ and receives in exchange a three-year 50000 note bearing interest at a 9 percent annual rate paid annually The market rate of interest for similar notes 11 percent . Journalize?

XY Makes a loan to TZ and receives in exchange a three-year 50000 note bearing interest at a 9 percent annual rate paid annually The market rate of interest for similar notes 11 percent . Journalize?
First, find the present value of the note.

We use the present value of a lump sum
PV = FV/(1+r)t

where R is the market rate of interest (11%), T is the number of years (3), and FV is the future value of the note (50,000)

Plus the present value of an ordinary annuity (the 9% of 50,000 annually represents an annuity, which we will use for the PMT):

PV = PMT x (1- [1 / (1+r)t] / r )

That will tell us how much of a premium or discount to record (in this case it should be a discount) by subtracting the total of the two formulas from 50,000.

The journal entry should look like this for the company making the loan:

Notes Receivable
---Discount on Notes Receivable
---Cash

Then, every year, we amortize that by finding 11% of the carrying value of the note (Total PV we calculated x the market rate of interest). Whatever cash we pay (9% of 50,000) is subtracted from it as our interest component of that number. The remainder is amortized.

The journal entry should look a lot like this:

Cash
Discount on Notes Receivable
---Interest Revenue
---Notes Receivable