Question

On January 1, 2009, Boston Ltd., made the following acquisitions:

1. Purchased machinery having a fair market value of $400,000 by issuing a four

year, non-interest-bearing promissory note in the face amount of $544,196. 2. Purchased heavy equipment by issuing a nine-year, 6% promissory note having

a maturity value of $325,000(interest is paid annually at December 31). The company has to pay 10% interest for funds from its bank.

Required:

a) Record Boston's journal entries on January 1, 2009, for each of the

purchases.

b) Record the interest at the end of the first year on both notes using the

effective interest method.

Answer 1

Jan-ll Om Answer? | a) Journal entry. TIF Debit credit Date particulars 2009 Machinery Ale $400,000 Discount on notas payable ale or $144,196 To Noles payable $544,196 or $250895 I Equipment Ale Discount on Noles payable ale or 74,175 - To notes payable $325000 working Note: calculation of Equecipment: Maturity value = $325,000 * omrou (n=9, V=10%] : $325,000x19 - $325,000x 0.4941 - Interest - $327,000x6% [1-(+5) $137833 3 $19,620x[1-6.1597 =9, -107] = 19,620 * 5.9590 = $112,992. .: Equipment 4137833 +$1199997 * $ 250,825 b) Journal entries Date particulars _ A Debil credit Iuleresl expense ale &4000c0X10%.] $ Hopoo To Discount on notes payat $ 40000 Interest- expence ale $ 250825x102] $25,083 To Discount on notes payable $5583 To Interest payable $19500 4 325,000 46% O