On January 1, Year 7, Ellen Paige Company makes the two following acquisitions:
1. Purchases land by issuing a 5-year, zero-interest-bearing promissory note in the face amount
of $337,012.
2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of
$250,000 (interest payable annually on December 31).
The company pays 11% interest to borrow funds from its bank.
Instructions:
Round all answers to the nearest dollar.
A. Prepare the two journal entries that should be recorded by Ellen Paige Company for the two
purchases on January 1, Year 7.
B. Prepare the adjusting journal entries at December 31 to recognize interest expense on each
debt obligation.
Discount on Zero interest bearing Note= |
337012*PVIF(11%,5) |
337012*0.59345 = 200000 |
Issue price of the 6% Promissory note= |
(250000*6%)*PVIFA(11%,8) + 250000*PVIF(11%,8) |
(250000*6%)*5.1461 + 250000*0.4339 = 185667 |
A) Journal Entry: |
||||
Date |
Acc Titles |
Dr. $ |
Cr.$ |
|
Jan 1, year 7 |
Land |
200000 |
||
Discount on Note Payable |
137012 |
|||
0% Note Payable |
337012 |
|||
(Purchase of land on issuance of Note face |
||||
with $337012, market rate 11% for 5 years) |
||||
Jan 1, year 7 |
Equipment |
185667 |
||
Discount on Note Payable |
64333 |
|||
6% Note Payable |
250000 |
|||
(Purchase of equipment on issuance of Note |
||||
with par value $250000, market rate 11% for 8 years) |
||||
B) Adjusting Journal Entry: |
||||
Dec 31, year 1 |
Interest Expense |
22000 |
||
Discount on Note Payable |
22000 |
(200000*11%) |
||
(Booking of interest on 0% Note) |
||||
Dec 31, year 1 |
Interest Expense |
20423 |
||
Cash |
15000 |
(250000*6%) |
||
Discount on Note Payable |
5423 |
(185667*11%) - (250000*6%) = 5423 |
||
(payment of annual interest on 6% Note) |
On January 1, Year 7, Ellen Paige Company makes the two following acquisitions: 1. Purchases land...
On January 1, 2020, Sheffield Company makes the two following acquisitions. 1. Purchases land having a fair value of $250,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $421,265. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $380,000 (interest payable annually). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Sheffield Company for the two...
On January 1, 2017, Blue Company makes the two following acquisitions. 1. Purchases land having a fair value of $320,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $485,782. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $360,000 (interest payable annually on January 1). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Blue Company...
On January 1, 2020, Carter Company makes the two following acquisitions. 1. Purchases land having a fair value of $ 200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $337,012. 2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $250,000 (interest payable annually). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Carter Company for the...
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...
On January 1, 2020, Sunland Company makes the two following acquisitions. 1. Purchases land having a fair value of $360,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $606,621. 2. Purchases equipment by issuing a 7%, 8-year promissory note having a maturity value of $560,000 (interest payable annually). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Sunland Company for the two...
On January 1, 2020, Shamrock Company makes the two following acquisitions. 1. Purchases land having a fair value of $220,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $333,975. 2. Purchases equipment by issuing a 7%, 8-year promissory note having a maturity value of $340,000 (interest payable annually). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Shamrock Company for the two...
On January 1, 2017, Cheyenne Company makes the two following acquisitions. 1. Purchases land having a fair value of $320,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $485,782. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $360,000 (interest payable annually on January 1). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Cheyenne Company...
On January 1, 2020, Sandhill Company makes the two following acquisitions. 1. Purchases land having a fair value of $290,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $467,048. 2. Purchases equipment by issuing a 7%, 9-year promissory note having a maturity value of $450,000 (interest payable annually). The company has to pay 10% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Sandhill Company for the two...
On January 1, 2017, Vaughn Company makes the two following acquisitions. 1. Purchases land having a fair value of $290,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $440,240. 2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $430,000 (interest payable annually on January 1). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Vaughn Company...
Exercise 14-16 On January 1, 2017, Martinez 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 on January 1). The company has to pay 12% interest for funds from its bank. Record the two journal entries that should be recorded by Martinez...