Question

On January 1, 2020, Carter Company makes the two following acquisitions. 1. Purchases land having a fair value of $ 200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $337,012. 2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $250,000 (interest payable annually). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Carter 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 o decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account tities and enter o 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 2. January 1, 2020 (b) 1. December 31, 2020 2. December 31, 2020

Answer 1

Date	Accounting titles & Explanations	Debit	Credit
a.
1. January 1, 2020	Land	$         200,000.00
	Discount on Notes Payable	$         137,012.00
	Notes Payable		$        337,012.00
	(To record purchase of land in exchange of zero interest bearing promissory note)
2. January 1, 2020	Equipment (=PV(11%,8,15000,250000,0))	$         185,673
	Discount on Notes Payable (250,000-185,673.7)	$           64,327
	Notes Payable		$        250,000.00
	(To record purchase of equipment)
b.
1. December 31, 2020	Interest Expense (200000*11%)	$           22,000.00
	Discount on notes payable		$          22,000.00
	(To record interest expense)
2. December 31, 2020	Interest Expense (185673*11%)	$           20,424
	Discount on notes payable (20424.08-15000)		$            5,424
	Cash (250000*6%)		$          15,000.00
	(To record interest expense)