Question

On January 1, 2017, Vaughn Company makes the two following acquisitions. 1. Purchases land having a fair value of $290,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $440,240. 2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $430,000 (interest payable annually on January 1). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Vaughn Company for the two purchases on January 1, 2017 (b) Record the interest at the end of the first year on both notes using the effective-interest method (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Date Account Titles and Explanation Debit Credit (a) 1. January 1, 2017 Land 290,000 Discount on Notes Payable 150240 Notes Payable 440,240 2. January 1, 2017 Equipment Discount on Notes Payable Notes Payable 430,000 (b) 1. December 31, 2017 Interest Expense 31,900 Discount on Notes Payable 31,900 2. December 31, 2017 Interest Expense Discount on Notes Payable Interest Payable

Answer 1