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Notes Payable. Rubio Company had the following borrowing activity. Rubio has a borrowing rate of 6...

  1. Notes Payable. Rubio Company had the following borrowing activity. Rubio has a borrowing rate of 6 percent on its other debt.

     A. On June 30, 2016, Rubio issued a non-interest bearing, 10 year note of $50,000 to acquire land for expansion.

        1. Calculate the cash equivalent price of the land (assuming 6% is the market rate).

         2. Prepare the journal entry to record the acquisition on June 30.

              B. On January 1, 2016, Rubio acquired equipment by issuing an $80,000, 2 percent (low-interest bearing), 5 year note, with interest paid annually, starting December 31, 2016.

            1. Calculate the cash equivalent price of the equipment (assuming 6% is the market rate).

            2. Prepare the journal entry to record the acquisition on January 1.

                          3. Prepare the journal entry to record the interest payment on December 31, 2016, assuming the effective interest method.

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Solution A- 2 Cash equivalent peice of Jand Psesent value of nołe discounted a+67. mazk te $ 21,320 De나 e 27920.0 Land Da* Discounto n Note 422Pscoo Payhble P 50 To Note: Payable CTo Recosd Pazchase oF land by is suing or l ing note 10%luion B: cash equivaleot peace of equipment。Paeser value of intesest and note dis (euoted af mtkef t*te of nteses 6% fot 5th pet, od τ |,60.* 42 12 364 t φ80,000 0.747253 $66.52 o Joune Enthies -Ru bio Debi Ijan- Equipment pt $66,520.oo Discouot o n notes 131 480.o O $ 3o,000-i0 euupmenl by issing o te) pec Tntesest expenses 3.991. 0o T coh ^ l^oo-ooTo Piscount an notes Peyble $ 2,3g 1-00 expenses on חote and discount cmotteHon

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