Question

how do i do this using a financial calculator?

Stuart Corporation purchased equipment and in exchange signed a two-year promissory note on January 14, 2012. The note requires Stuart to make a single payment of $40,000 at the end of 2012 and a single payment of $100,000 at the end of the second year. Stuart has other promissory notes that charge interest at the annual rate of 6 percent Required: 1. Compute the present value of the note, rounded to the nearest dollar, using Stuart's typical interest rate of 6 percent. Round to the nearest dollar. Expect Rounding 2. Show the 1/1/12 journal entry to record the equipment purchase (round to the nearest dollar). Accounts Debits Credits 3. Show the journal entry at the end of the first year to record the first payment of $40,000. Accounts Debits Credits

Answer 1

Solution 1:

Present value of note = $40,000 * PV factor at 6% for first period + $100,000 * PV factor at 6% for 2nd period

= $40,000 * 0.94340 + $100,000 * 0.89000

= $126,736

Solution 2:

Journal Entries
Date	Particulars	Debit	Credit
1-Jan-12	Equipment Dr	$126,736.00
	To Notes Payable		$126,736.00
	(To record purchase of equipment by issue of note)

Solution 3:

Journal Entries
Date	Particulars	Debit	Credit
31-Dec-12	Interest expense Dr ($126,736*6%)	$7,604.00
	Notes payable Dr	$32,396.00
	To Cash		$40,000.00
	(To record first payment)