On December 31, 2017, Laser Inc. acquired a machine from Rocky Corporation by issuing a $600,000, non–interest-bearing note that is payable in full on December 31, 2021. The company’s credit rating permits it to borrow funds from its several lines of credit at 10%. The machine is expected to have a five-year life and a $70,000 residual value. (a) Calculate the value of the note and prepare the journal entry for the purchase on December 31, 2017. [2 Marks] (b) Prepare any necessary adjusting entries related to depreciation of the asset (use straight-line) and amortization of the note (use the effective interest method) on December 31, 2018. [3 Marks].
The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.
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