Question

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.

No. Date Account Titles and Explanation Debit Credit (a) 1. January 1, 2020 Land 160,000 Discount on Notes Payable 91,763 Notes Payable 251,763 2. January 1, 2020 Equipment 185,674 Discount on Notes Payable 185,674 Notes Payable 270,000 (b) 1. December 31, 2020 Interest Expense 19,200 Discount on Notes Payable 19,200 2. December 31, 2020 Interest Expense 185,674 Discount on Notes Payable 185,674 Interest Payable 18,900

Answer 1

solution NO I Date Account title Debit credet (9) 1. | Jan 1, 2020 1 60000 251 763 Land Discount on Notes payable 91763 Notes payable Eqreepment 202948 Discount on Note payable | 67052 Notes payable 2. | Jan 1, 2020 270000 1 lb) 1 Dec 31, 2020 1 19200 Interest expense - 1160000 X 12%.] Discount on Note payable 19200 - 2 | Dec 31, 2020 Interest expense 24354 C202948X12%] Notes payable 5454 18900 Cash [270000x 7% * equepment = [ 270000 X 0.4039 = 109053]+[270000479%X 4.9685 = 93895-2 202948

Note: PvIFA (19%,8) = 40968 Puf (19% , 8) = 0.4039