. Truck #2 has a list price of $16,000 and is acquired for a down payment...
. Truck #2 has a list price of $16,000 and is acquired for a down payment of $2,000 cash and a zero- interest-bearing note with a face amount of $14,000. The note is due April 1, 2015. Clarkson would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%. Prepare the appropriate journal entries for the above transactions for Clarkson Corporation Please explain answer
Homework Answers
| Calculating present value of principal amount to be paid after 1 year | ||||||
| Present value= Principal value x PVF @ 10% for 1 year | ||||||
| Present value= | 14000 x .909= | 12726 | ||||
| Discount on note payable = 14000 - 12726= | 1274 | |||||
| Value of truck shall be =2000 +12726 =14726 | ||||||
| Journal entry | ||||||
| Debit | Credit | |||||
| Truck | 14726 | |||||
| Discount on notes payable | 1274 | |||||
| cash | 2000 | |||||
| notes payable | 14000 | |||||
| ( Being asset recorded) | ||||||
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