Question

At January 1, 2018, Brant Cargo acquired equipment by issuing a five-year, $200,000 (payable at maturity), 6% note. The market rate of interest for notes of similar risk is 10%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1. to 3. Prepare the necessary journal entries for Brant Cargo. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar)

Answer 1

Correct Answer:

General Journal	Debit	Credit
Equipment	$         1,69,674
Discount on notes payable	$             30,326
Notes payable		$          2,00,000

Working:

Annually		Formula Applied
Face Value of Notes Payable	$                         2,00,000
Interest Annually @ 6%	$                            12,000	(Face Value of Notes Payables * Coupon rate )
-Annual Effective interest Rate r = ( 10%)	0.10	10%
Time Period (n) 5 years	5	5 Years
Present Value of Face Value of Notes Payable	$            1,24,184.26461	Face Value/(1+r%)^n
Present Value of Interest payment	$                      45,489.44	Interest * ((1-(1+r)^-n)/r)
Issue Price Of Notes Payable	$                         1,69,674	PV of Face value of Notes Payable + PV of Interest Paid Annually
Premium or (Discount)	$                          (30,326)	Issue Price - Face Value of Notes Payables

End of answer.

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