Homework Answers
Requirement 1:
| Date | Account title and Explanation | Debit | Credit |
| Jan 1,2021 | Tractor | $23,788 | |
| Discount on bonds payable | $7,212 | ||
| Cash | $2,000 | ||
| Notes payable | $29,000 | ||
| [To record acquisition of the tractor] |
Calculations:
| Down payment | $2,000 |
| Present value of the note | $21,788 |
| [$29,000 x 0.75131 present value factor (10%, 3 years)] | |
| Cost of the tractor | $23,788 |
Requirement 2:
i.Interest expense for 2021 = Carrying value of the note on Jan 1,2021 x 10%
= $23,788 x 10%
= $2,178.80
ii. Interest expense for 2022 = Carrying value of the note on Jan 1,2022 x 10%
= ($23,788+$2,178.80) x 10%
=$2,396.68
Requirement 3:
Liability to be report at the end of the period,
i.For 2021 = Carrying value of the note on Jan 1,2021 + Interest expense for 2021
= $21,788 + $2,178.8
= $23,966.8
ii.For 2022 = Carrying value of the note on Jan 1,2022 + Interest expense for 2022
=$23,966.8 + $2,396.68
= $26,363.48
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