Question

Check my work On January 1, 2018, Byner Company purchased a used tractor. Byner paid $2,000 down and signed a noninterest-bearing note requiring $29,000 to be paid on December 31, 2020. The fair value of the tactor is not determinable. An interest rate of 10% popery reflects the time value of money for this type of loan agreement. The company's fiscal year-end is December 31. (EV of $1. PV of $1 FVA of $1. PVA of $1, EVAD of $1 and PVAD of S1) (Use appropriate factor(s) from the tables provided.) 10 points Required: 020807 1. Prepare the journal entry to record the acquisition of the tractor 2. How much interest expense will the company include in its 2018 and 2019 income statements for this note? 3. What is the amount of the liability the company will report in its 2018 and 2019 balance sheets for this note? eBook Print References Complete this question by entering your answers in the tabs below Req 1 Req 2 and 3 Prepare the journal entry to record the acquisition of the tractor. (If no entry is required for a transaction/event, select "No journal entry required in the first account field. Do not round intermediate calculations. Round your answers to the nearest whole dollars.) View transaction list Journal entry worksheet < Prev 7 of 17 Next >

Answer 1

Solution 1:

Value of tractor = Down payment + Present value of non interest bearing note

= $2,000 + ($29,000 * PV factor at 10% for 3rd period)

= $2,000 + $29,000*0.75132

= $23,788

Journal Entry - Byner Company
Date	Particulars	Debit	Credit
1-Jan-18	Tractor Dr	$23,788.00
	To Cash		$2,000.00
	To Notes Payable		$21,788.00
	(To record purchase of tractor)

Solution 2 & 3:

Interest expense to be reported in 2018 income statement = $21,788*10% = $2,179

Liability amount to be reported in 2018 balance sheet = $21,788 + $2,179 = $23,967

Interest expense to be reported in 2019 income statement = $23,967*10% = $2,397

Liability amount to be reported in 2019 balance sheet = $23,967 + $2,397 = $26,364