Question

At the beginning of the year, Lambert Motors issued the three notes described below. Interest is paid at year-end. (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.)

1. The company issued a two-year, 10%, $610,000 note in exchange for a tract of land. The current market rate of interest is 10%.
2. Lambert acquired some office equipment with a fair value of $100,227 by issuing a one-year, $105,000 note. The stated interest on the note is 5%. The current market rate of interest is 10%.
3. The company purchased a building by issuing a three-year installment note. The note is to be repaid in equal installments of $1 million per year beginning one year hence. The current market rate of interest is 10%.

Required:

Prepare the journal entries to record each of the three transactions and the interest expense at the end of the first year for each. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars.)

No Transaction General Journal Credit Debit 610,000 Land Notes payable 610,000 16 61,000 Interest expense Cash 61,000 c za Office equipment Discount on notes payable Notes payable 100,227 4,773 105,000 10,023 Interest expense Discount on notes payable Cash 4,773 5,250 3a 2,577,100 X Building Notes payable 2,577,100 X 3b Interest expense Notes payable Cash 206,168 X 793,832 X 1,000,000

Answer 1

No.	Transaction	General Journal	Debit	Credit
E	3a.	Building	$2486850
		Notes Payable		$2486850
F	3b.	Interest Expense ($2486850 * 10%)	$248685
		Notes Payable	$751315
		Cash		$1000000

Building = $1000000 * (PVAF 10%, 3 years)

         = $1000000 * 2.48685 = $2486850