Question

On January 1, 2017, Concord Company makes the two following acquisitions. 1. Purchases land having a fair value of $290,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $440,240. 2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $430,000 (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 Concord 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. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Date Account Titles and Explanation Debit Credit

Answer 1

solution:

Date	Account Title & Explanation	Debit	Credit
(a).
Jan.1	Land	$290,000
	Discount on notes payable	$150,240
	Notes payable		$440,240
Jan.1	Equipment  (see workings)	$319,360
	Discount on notes payable	$110,640
	Notes payable		$430,000
	[workings; (430,000*6%*5.14612 + 430,000*0.43393) ]
(b).
Dec.31	1. Interest Expense (290,000*11%)	$31,900
	Discount on notes payable		$31,900
	2. Interest Expense ($319,360*11%)	$35,130
	Discount on notes payable	$ 9,330
	Cash (430,000*6%)		$25,800