Question

On January 1, Snipes Construction paid for earth-moving equipment by issuing a $450,000, 4-year note that specified 2% interest to be paid on December 31 of each year. The equipment’s retail cash price was unknown, but it was determined that a reasonable interest rate was 5%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

At what amount should Snipes record the equipment and the note?
What journal entry should it record for the transaction?

• rice of Equipment
• General Journal

At what amount should Snipes record the equipment and the note? (Round your answers to the nearest whole dollars.)

	Table values are based on: n = 4 i = 5.0% Loan repayments Amount Present Value Interest $9,000 Principal $450,000 Price of equipment

• 	Event General Journal Debit Credit 1 Equipment Discount on notes payable Notes payable 450,000

Answer 1

Table values are based on:
n=	4
i=	5%
Loan repayments	Amount	Present Value
Interest	9000	31914
Principal	450000	370215
Price of equipment		402129
General Journal	Debit	Credit
Equipment	402129
Discount on notes payable	47871
Notes payable		450000