Question

Ivanhoe Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2020. The terms of acquisition for each truck are described below.

Truck #2 has a list price of $39,200 and is acquired for a down payment of $4,900 cash and a zero-interest-bearing note with a face amount of $34,300. The note is due April 1, 2021. Ivanhoe would normally have to pay interest at a rate of 9% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.

Prepare the appropriate journal entries for the above transactions for Ivanhoe Corporation.

Answer 1

Credit $4,900 $34,300 Answer General Journal Debit Trucks $36,368 Discount on Notes Payable [($34,300 + $4,900) - $36,368) $2,832 Cash Notes Payable (To record the purchase of Trucks) Explanations #Trucks = PV of $34,300 @ 9% for 1 year + $4,900 = $34,300 x 0.91743 + $4,900 = $31,468 + $4,900 = $36,368