On January 1, 2019, Merck Manufacturing borrowed and received $2,000,000 from one of its major...
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On January 1, 2019, Merck Manufacturing borrowed and received $2,000,000 from one of its major customers, Felix Innovations by signing a zero-interest bearing note with a maturity value of $2,000,000 due in five years. The appropriate rate of interest applicable to this note (based on prime interest rate, borrowers credit rating and general market interest rate of similar note) is 6%. As a consideration, Merck agrees to sell inventories to Felix during the loan period at a price lower than the prevailing market price of inventories.
1. Prepare the journal entry in Mercks book to record the initial borrowing transaction on January 1, 2019. Show your supporting calculations.
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