Question

Current Attempt in Progress 1. On January 1, 2020, Marin Company makes the two following acquisitions. Purchases land having a fair value of $220,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $346,174 Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $410,000 (interest payable annually). 2. The company has to pay 12% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Marin Company for the two purchases on January 1, 2020. (6) Record the interest at the end of the first year on both notes using the effective-interest method.

please help me answering all of these questions. thank you so much

Answer 1

Answer :-

No.	Date	Account Title and Explanation	Debit	Credit
a)
1.	Jan 1, 2020	Land	$220,000
		Discount on Notes Payable ($346,174 - $220,000)	$126,174
		To Note Payable		$346,174
2.	Jan 1, 2029	Equipment (Note - 1)	$287,795
		Discount on Notes Payable ( $410,000 - $287,795 )	$122,205
		To Notes Payable		$410,000
b)
1.	Dec 31, 2020	Interest Expenses ( $220,000 × 12% )	$26,400
		To Discount on Notes Payable		$26,400
2.	Dec 31,2020	Interest Expenses ( $287,795 × 12% )	$34,535
		To Cash ( $410,000 × 6% )		$24,600
		To Discount on Notes Payable		$9,935

Note 1 :-

Present value of note = { Principal of note × PV(12% ,8 years) } + Annual Interest × PVAF(12% ,8 years)

Principal of note = $410,000

PV(12% , 8 years) = 0.40388

Annual Interest = $410,000 × 6% interest rate = $24,600

PVAF (12% ,8 years ) = 4.96764

Present value of note = ( $410,000 × 0.40388 ) + ( $24,600 × 4.96764 )

Present value of note = $165,590.80 + $122,203.94

Present value of note = $287,794.74 or $287,795