Question

Brief Exercise 10-5 Headland Corporation purchased a truck by issuing an $102,400, 4-year, zero-interest-bearing note to...

Brief Exercise 10-5

Headland Corporation purchased a truck by issuing an $102,400, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%.

Prepare the journal entry to record the purchase of this truck. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

List Of Accounts

Accounts Payable
Accumulated Depreciation-Building
Accumulated Depreciation-Equipment
Accumulated Depreciation-Machinery
Accumulated Depreciation-Trucks
Buildings
Cash
Common Stock
Contribution Revenue
Cost of Goods Sold
Depreciation Expense
Direct Labor
Discount on Notes Payable
Equipment
Factory Overhead
Gain on Disposal of Buildings
Gain on Disposal of Equipment
Gain on Disposal of Machinery
Gain on Disposal of Trucks
Insurance Expense
Interest Expense
Inventory
Land
Land Improvements
Loss on Disposal of Buildings
Loss on Disposal of Equipment
Loss on Disposal of Machinery
Loss on Disposal of Trucks
Machinery
Maintenance and Repairs Expense
Materials
No Entry
Notes Payable
Organization Expense
Paid-in Capital in Excess of Par - Common Stock
Prepaid Insurance
Retained Earnings
Salaries and Wages Expense
Sales Revenue
Trading Securities
Trucks

Homework Answers

Answer #1
Account Titles and Explanation Debit Credit
Equipment $69,940
Discount on note payable $32,460
Note payable $102,400
( To record purchase of truck by issuing zero interest bonds)

Par value of note = $102,400

Interest rate (i) = 10%

Time period (n) = 4 years

Present value of note = Par value of note x Present value factor (i%, n)

= 102,400 x Present value factor (10%, 4)

= 102,400 x 0.68301

= $69,940

Discount on note payable = Par value of note- Present value of note

= 102,400-69,940

= $32,460

Kindly comment if you need further assistance. Thanks

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