Question

On January 1, 2020, M Company makes the two following acquisitions.

1.		Purchases land having a fair value of $290,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $467,048.
2.		Purchases equipment by issuing a 7%, 9-year promissory note having a maturity value of $450,000 (interest payable annually).

The company has to pay 10% interest for funds from its bank.

(a)		Record the two journal entries that should be recorded by M Company for the two purchases on January 1, 2020.
(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
(a) 1.	January 1, 2020	enter an account title to record the first purchase on January 1, 2017	enter a debit amount	enter a credit amount
		enter an account title to record the first purchase on January 1, 2017	enter a debit amount	enter a credit amount
		enter an account title to record the first purchase on January 1, 2017	enter a debit amount	enter a credit amount
2.	January 1, 2020	enter an account title to record the second purchase on January 1, 2017	enter a debit amount	enter a credit amount
		enter an account title to record the second purchase on January 1, 2017	enter a debit amount	enter a credit amount
		enter an account title to record the second purchase on January 1, 2017	enter a debit amount	enter a credit amount
(b) 1.	December 31, 2020	to record the interest on the first note using the effective-interest method on December 31, 2017	enter a debit amount	enter a credit amount
		to record the interest on the first note using the effective-interest method on December 31, 2017	enter a debit amount	enter a credit amount
2.	December 31, 2020	to record the interest on the second note using the effective-interest method on December 31, 2017	enter a debit amount	enter a credit amount
		to record the interest on the second note using the effective-interest method on December 31, 2017	enter a debit amount	enter a credit amount
		to record the interest on the second note using the effective-interest method on December 31, 2017	enter a debit amount	enter a credit amount

Answer 1

answer-

No.	Date	Account Titles and Explanation	Debit	Credit
(a) 1.	January 1, 2020	Land	290000
		Discount on notes payable(467048-290000)	177048
		notes payable		467048
2.	January 1, 2020	Equipment [450000 / (1+0.10)9 ]	190844
		discount on notes payable (450000 - 190844)	259156
		Notes payable		450000
(b) 1.	December 31, 2020	Interest expense (290000*10%)	29000
		discount on notes payable		29000
2.	December 31, 2020	Interest expense	50584
		Discount on notes payable(190844 *10%)		19084
		interest payable(450000*7%)		31500