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 |
| 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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