Question

Bay Lake Mining Ltd. purchases earth-moving equipment on 1 August 20X6 and signs a three-year note with the supplier, agreeing to pay $490,000 on 31 July 20X9. There is no interest in the note. The equipment purchased does not have a readily determinable market value.(PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.)

Required:
1-a. Does Bay Lake Mining Ltd. actually have a no-interest loan?

• Yes

• No

1-b. Not available in connect.

2. Calculate the present value of the note payable, using an interest rate of 7%. (Round time value factor to 5 decimal places and final answer to the nearest dollar amount.)

3. Not available in connect.

4. Prepare a table that shows the balance of the note payable and interest expense over the life of the note. (Round your final answers to the nearest dollar amount.)

5. Provide all entries for the note for 20X6 and 20X7. Record adjusting entries at the end of the fiscal year and on the anniversary date of the loan. Use the gross method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations and final answers to the nearest dollar amount.)

6. Show the note payable (accounts and amounts) as it would be included on the statement of financial position at 31 December 20X6 and 20X7. (Round your intermediate calculations and final answers to the nearest dollar amount.)

Answer 1

Answer to Requirement 1: No., Bay Lake Mining Ltd., purchased the moving equipment including interest or along with the interest. The Implied interest rate = Maturity Amount of Note - Present Value of Note The difference will be the interest charged by the Supplier. Answer to Requirement 2: Calculation of Present Value of Note using interest rate of 7%: = Amount of Note x Present Value of $1 (7%,3 Years) = $490,000 x 0.81630 $399,987.00

Answer to Requirement 3: Ending Balance of Loan Beginning Balance Interest Expense Period 1-Aug-16 31-Dec-16 31-Dec-17 399,987.00 411,653.29 440,469.02 471,301.85 490,000.00 399,987.00 $ 411,653.29 |$ 440,469.02 | $ 471,301.85 | $ 2$ 2$ 11,666.29 $ 28,815.73 $ 30,832.83 $ 18,698.15 | $ 31-Dec-18 31-Jul-19