Question

Question 2 0.88/1 View Policies Show Attempt History Current Attempt in Progress Your answer is partially correct. On January 1, 2020, Flint Company makes the two following acquisitions. 1. Purchases land having a fair value of $160,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $251,763. 2. Purchases equipment by issuing a 7%, 8-year promissory note having a maturity value of $270,000 (interest payable annually). The company has to pay 12% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Flint Company for the two purchases on January 1, 2020. (b) Record the interest at the end of the first year on both notes using the effective-interest method. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Answer is correct for a1 and b1

Journal Entries
Date	Particulars	Debit	Credit
a1	Land	$160,000.00
	Discount on note payable	$91,763.00
	Notes Payable		$251,763.00
a2	Equipment (Wk note)	$202936.00
	Discount on note payable (270000 - 202936)	67,064.00
	Notes Payable		$270,000.00

Working note:

= ($270,000*7%) * Cumulative PV Factor at 12% for 8 periods + $270,000 * PV Factor at 12% for 8th period

= $18900 * 4.96764 + $270,000*0.40388

= 93888.396+109047.6 = 202936

Solution b:

Journal Entries
Event	Particulars	Debit	Credit
b1	Interest expense	$19,200.00
	Discount on note Payable		$19,200.00
b2	Interest expense ($202936*12%)	$24,352.00
	Interest Payable		$18,900.00
	Discount on note Payable		$5452.00

Working note:

Interest expense = equipment value * interest rate = 202936 * 12/ 100 = 24352

Discount on notes payable = Interest expense - interest payable = 24352 - 18900 = 5452