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On January 1, 2019, Merck Manufacturing borrowed and received $2,000,000 from one of its major...

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Accounting

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. 2. Prepare the required journal entries in Mercks book to record the adjustments needed on December 31, 2019 assuming that its total sales to Felix Innovations for the year 2019 is $445,000.

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