Question

Question 2 0.79/1 View Policies Show Attempt History Current Attempt in Progress - Your answer is partially correct. On January 1, 2020, Kingbird Company makes the two following acquisitions. 1. Purchases land having a fair value of $160,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $251,763. 2. Purchases equipment by issuing a 7%, 8-year promissory note having a maturity value of $270,000 (interest payable annually). The company has to pay 12% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Kingbird Company for the two purchases on January 1, 2020. (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 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Requirement a:

Date	Account title and Explanation	Debit	Credit
Jan 1,2020	Land	$160,000
	Notes payable		$160,000
	[To record purchase of land in exchange of note]
Jan 1,2020	Equipment	$270,000
	Notes payable		$270,000
	[To record purchase of equipment in exchange of note]

Requirement b:

Date	Account title and Explanation	Debit	Credit
Dec 31,2020	Interest expense [160,000 x 12% market rate]	$19,200
	Notes payable		$19,200
	[To record interest expense on zero-interest note payable]
Dec 31,2020	Interest expense [270,000 x 7%]	$18,900
	Interest payable*		$18,900
	[To record accrued interest expense on 8-year promissory note]

*Assumed that interest paid every year Jan. 1