Question

Foster Company purchased a machine in exchange for a non-interest-bearing note

having a face amount of $32,000 and payable in four annual installments of $8,000

each. The note does not trade on an open market. Recent exchanges involving the

same type of equipment indicate that the machine could have been purchased for

$25,000 cash. Based on these facts, determine the amount to record as the cost of

the machine and prepare the related journal entry.

Answer 1

Answer:

Machine cost = $25,000

Discount on Notes payable = Notes Payable - Machine cost = 32000 - 25000 = $7,000