Question

On December 31, 2020, Flounder Company acquired a computer from Plato Corporation by issuing a $573,000 zero- interest-bearing note, payable in full on December 31, 2024. Flounder Company's credit rating permits it to borrow funds from its several lines of credit at 10%. The computer is expected to have a 5-year life and a $70,000 salvage value. (a) Prepare the journal entry for the purchase on December 31, 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Credit Date Account Titles and Explanation December 31, 2020

Answer 1

a.

Interest rate (i) = 10%

Time period of note (n) = 4 years

Par value of note = $573,000

Present value of note = Par value of note / (1+i)ⁿ

= 573,000/ (1+0.10)⁴

= 573,000/(1.10)⁴

= 573,000/1.4641

= $391,367

Discount on note payable = Par value of note - Present value of note

= 573,000-391,367

= $181,633

Date	Account Titles and Explanation	Debit	Credit
December 31, 2020	Equipment	$391,367
	Discount on note payable	$181,633
	Note payable		$573,000
	( To record purchase of equipment)

Kindly give a positive rating if you are satisfied with this solution and please ask if you have any query.

Thanks