Question

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 for the two purchases on January 1, 2017.
(b)		Record the interest at the end of the first year on both notes using the effective-interest method

No. Date Account Titles and Explanation Debit Credit (a) January 320,000 1. 1, 2017 Land Discount on Notes Payable 165,782 Interest Expense otes Payable 485,782 2 January 1, 2017Equipment 260,323 Discount on Notes Payable 99,677 Notes Payable 360,000 (b) December 1. 31, 2017 Interest Expense 35,200 Discount on Notes Payable 35,200 December 31, 2017Interest Expense 2. 28636 Cash 21,600 Discount on Notes Payable 7036

Answer 1

Solution:

Others are correct. Provided solution for unsolved parts:

2. Jan 1,2017

Equipment. $260,331*

Discount on notes payable. $99,669

Notes payable. $360,000

*(360,000×(1.11)^-9=$140731.20)+(360,000×.06×{(1-(1.11)^-9)/.11}=$119,600.28)=$260,331

2. Dec 31,2017

Interest expense(260331×.11). $28,636

Discount on notes payable(28636-21600). $7,036

Cash. $21,600

Answer 2

Interest Payable