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 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

e.g. 58,921. It no entry is required, select "No Entry" for the account titles and enter U tor 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

List Of Accounts

Accumulated Depreciation-Equipment Accumulated Depreciation-Machinery Accumulated Depreciation-Plant and Equipment Allowance for Doubtful Accounts Bad Debt Expense Bond Issue Expense Bonds Payable Buildings Cash Common Stock Cost of Goods Sold Debt Investments Depreciation Expense Discount on Bonds Payable Discount on Notes Payable Discount on Notes Receivable Equipment Equity Investments Gain on Disposal of Machinery Gain on Disposal of Land Gain on Disposal of Plant Assets Gain on Redemption of Bonds Gain on Restructuring of Debt Gain on Sale of Machinery Interest Expense Interest Payable Interest Receivable Interest Revenue Inventory Land Loss on Disposal of Equipment Loss on Disposal of Land Loss on Redemption of Bonds Machinery Mortgage Payable No Entry Notes Payable Notes Receivable Paid-in Capital in Excess of Par - Common Stock Paid-in Capital in Excess of Par - Preferred Stock Premium on Bonds Payable Retained Earnings Salaries and Wages Expense Sales Sales Revenue Unamortized Bond Issue Costs Unearned Revenue Unearned Sales Revenue Unrealized Holding Gain or Loss - Equity Unrealized Holding Gain or Loss - Income

Answer 1

Answer: Requirement a: No. Date | 1 January 1, 2020 Debit($) Credit($) 200000 137012 337012 Interest Payment = $250000 x 0.06 Interest Payment = $15000 Account Titles and Explanation Land Discount on note payable Note payable [To record purchase of land in exchange for zero-interest bearing promissory note] Equipment Discount on note payable Note payable [To record the issuance of the 6%, 8-year promissory note] 2 January 1, 2020 185674 64326 Computation of the discount on notes payable: Present Value Of Note = [($15000 x 5.14612)+($250000 x 0.43393)] Present Value of Note = $185674 250000 Discount = $250000 -185674 Debit($) Credit($) 22000 22000 Requirement b: No. Date Account Titles and Explanation 1 December 31, 2020 Interest Expense (200,000 x 0.11) Discount on Notes Payable [To record interest] 2 December 31, 2020 Interest Expense (185,674 0.11) Cash (250,000 x 0.06) Discount on Notes Payable [To record interest and amortize discount] 20424 15000 5424