On December 31, 2019, Frost Company performed engineering consulting services for Palmquist, Inc.
Palmquist was short of cash, and Frost Co. agreed to accept a $230,000 zero-interest-bearing note due
December 31, 2021, as payment in full. Palmquist is somewhat of a credit risk and typically borrows
funds at a rate of 8%. Frost is much more creditworthy and has various lines of credit at 5%.
Instructions: Prepare the following journal entries for Frost Co. You must show supporting
computations to receive full credit.
a. Prepare the journal entry to record the transaction of December 31, 2019.
b. Prepare the adjusting journal entry for December 31, 2020.
c. Prepare the adjusting journal entry and the collection of the note for December 31, 2021.