Note Payable Entries—Investor and Issuer
Fitzgerald Inc. issued $750,000 of 8 year, 11% notes payable dated April 1, 2004. Interest on the notes is payable semiannually on April 1 and October 1. The notes were sold on April 1, 2004, to an underwriter for $720,000 net of issuance costs. The notes were then offered for sale by the underwriter, and on July 1, 2004, L. Baum purchased the entire issue as a long term investment. Baum paid 101 plus accrued interest for the notes. On June 1, 2007, Baum sold the investment in Fitzgerald notes to J. Gott as a short term investment. Gott paid 96 plus accrued interest for the notes as well as $1,500 for brokerage fees. Baum paid $1,000 brokerage fees to sell the notes. Gott held the investment until April 1, 2008, when the notes were called at 104 by Fitzgerald.
Instructions: Prepare all journal entries required on the books of Fitzgerald Inc. for 2004 and 2008; on the books of Baum for 2004 and 2007; and on the books of Gott for 2007 and 2008. Assume that each entity uses the calendar year for reporting purposes and that issue costs are netted against the note proceeds by Fitzgerald. Any required amortization is made using the straight line method. Ignore any potential impact of year to year market value changes on the accounting for the notes by the investors.