Question

Recording a Note Payable Issued for Non-Cash Consideration On January 1, 2020, Jet Air Inc. contracted with Systems Plus Inc. to manufacture heavy equipment. Jet Air Inc. issued a $22,500 note to Systems Plus Inc. in exchange for the equipment that required 5% interest payments annually over 3 years on December 31 of each year. Although the fair value of the customized heavy equipment was not reasonably determinable, it was determined that 10% was a reasonable rate of interest for such a transaction Provide journal entries to be made by Jet Air Inc. at each of the following dates. 2. January 1, 2020 ---Date of note issuance. 5. December 31, 2020 ---Date of interest payment. c. December 31, 2021 ---Date of interest payment. d. December 31, 2022 ---Date of interest payment. e. December 31, 2022 ---Date of note payment at maturity. • Note: List multiple debits or credits (when applicable) in alphabetical order, • Note: Round your answer to the nearest whole dollar. • Note: Adjust interest expense in 2022 for any net rounding differences. Date Account Name Dr. Cr. a Jan 1, 2020 D. Dec. 31, 2020 Dec 31, 2021 d. Dec 31, 2022 e. Dec 31, 2022

Answer 1

		Cash flow	Amount	Present value				Period	Interest factor 10%
		Interest	$1,125	$2,798				1	0.909091
			(22500*5%)	(2.486852*1125)				2	0.826446
		Principal	$22,500	$16,905				3	0.751315
				(22,500*.751315)					2.486852
		Price of equipment		$19,703
	a	Date	General Journal		Debit	Credit
		jan 1 2020	Equipment		$19,703
			Note payable			$19,703
			(purchase of equipment)
		Cash payment	Effective Interest	Increase in balance	Oustanding bal.
	0				$19,703
	1	$1,125	$1,970	$845	$20,548
			(19703*10%)
	2	$1,125	$2,055	$930	$21,478
			(20548*10%)
	3	$23,625	$2,147	-$21,478.00	$0
			(21478*10%)
	Date	Account titles and explanations		Debit	Credit
b	31-Dec-20	Interest expense		$1,970
		Cash			$1,125
		Note payable			$845
		(Interest for first year recorded)
c	31-Dec-21	Interest expense		$2,055
		Cash			$1,125
		Note payable			$930
		(Interest for second year recorded)
d	31-Dec-23	Interest expense		$2,147
		Cash			$1,125
		Note payable			$1,022
		(Interest for third year recorded)
e	31-Dec-23	Note payable		$22,500
		Cash			$22,500
		(Note payable paid)