Question

At January 1, 2021, Brant Cargo acquired equipment by issuing a four-year, $150,000 (payable at maturity), 6% note. The market rate of interest for notes of similar risk is 12%. (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.) Required: 1. to 3. Prepare the necessary journal entries for Brant Cargo. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to the nearest whole dollar) View transaction list Journal entry worksheet 2 3 Record the purchase of equipment. Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2021 Record entry Clear entry View general journal

Answer 1

Solution 1 to 3:

Fair value of equipment = Present value of interest and note

= ($150,000*6%) * Cumulative PV factor at 12% for 4 periods + $150,000 * PV factor at 12% for 4th period

= $9,000 * 3.03735 + $150,000 * 0.63552 = $122,664

Journal Entries - Brant Cargo
Date	Particulars	Debit	Credit
1-Jan-21	Equipment Dr	$122,664.00
	Discount on notes payable Dr	$27,336.00
	To Notes Payable		$150,000.00
	(To record equipment purchased by issue of note)
Journal Entries - Brant Cargo
Date	Particulars	Debit	Credit
31-Dec-21	Interest expense Dr ($122,664*12%)	$14,720.00
	To Cash		$9,000.00
	To Discount on notes payable		$5,720.00
	(To record interest expense)
Journal Entries - Brant Cargo
Date	Particulars	Debit	Credit
31-Dec-22	Interest expense Dr ($128,384*12%)	$15,406.00
	To Cash		$9,000.00
	To Discount on notes payable		$6,406.00
	(To record interest expense)