Question

sent FULL SCREEN PRINTER VERSION 4 BACK Exercise 14-12 Presented below are two independent situations. Hint: Use tables in Chapter 6. On January 1, 2015, Spartan Inc. purchased land that had an assessed value of $390,000 at the time of purchase. A $600,000, zero-interest-bearing note due January 1, 2018, was given in exchange. There was no established exchange price for the land, nor a ready market price for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2015, and the interest expense to be reported in 2015 related to this transaction (Por calculation purposes, es decimal places as displayed in the factor table provided and round final answers to decimal places, e.g. 5,275.) Amount recorded for land $ Interest expense $ On January 1, 2015, Gelmer Furniture Co, borrowed $4,000,000 (face value) from Aurora Co, a major customer, through a ero-interest-bearing note due in 4 years. Because the note was rero Interest-bearing, Geimer Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan Prepare the journal entry to record this transaction. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required select "No Entry for the account titles and enter for the amounts. For calculation purposes, es decimal places as displayed in the factor table provided and round final answers to o decimal places, e.g. 5,275.) Account Tities and Explanation Debit Crec Privacy Policy I 2000-2020. ohne Sons Inc. Arved. A Division of Won MacBook Air

Answer 1

Hi

Pls see below for calculations:

Question PART 1
Step 1:		$
Face value of the zero-interest-bearing note	A	600,000.00
Discounting factor (12% for 3 years) [(1/1.12)^3 = 0.71178]	B	0.7118
Amount to be recorded for the land at January 1, 2015	A x B	427,068.00
Step 2:
Carrying value of the note at January 1, 2015 (from above step 1)	A	427,068.00
Applicable interest rate	B	0.12
Interest expense to be reported in 2015	A x B	51248.16
Question PART 2
Account titles	Dr/Cr	Debit	Credit
Cash	Dr	$4,000,000
Discount on Notes Payable (See note below)	Dr	1,267,946
Notes Payable	Cr		$4,000,000
Unearned Sales Revenue (See note below)	Cr		1,267,946
Note : Calcualtion of Discount on Notes payable
Face value of the zero-interest-bearing note	A	4,000,000
Discounting factor (10% for 4 years) [(1/1.12)^4 = 0.6830]	B	0.6830
	A x B= C	2,732,053.82
Discount	A-C	1,267,946