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%, $800,000 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 $190,909 by issuing a one-year, $200,000 note. The stated interest on the note is 5%. The current market rate of interest is 10% 3. The company purchased a bullding by issuing a five-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.) Answer is not complete. Credit No Transaction General Journal Debit 800,000 A 1a Land Notes payable OO 800,000 80,000 B 1b Interest expense Cash 80,000 20 190,900 9,091 Office equipment Discount on notes payable Notes payable 200,000

Answer 1

	General Journal	Debit	Credit
1a	Land	800000
	Notes payable		800000
1b	Interest expense	80000
	Cash		80000
2a	Office equipment	190909
	Discount on notes payable	9091
	Notes payable		200000
2b	Interest expense	19091		=190909*10%
	Discount on notes payable		9091
	Cash		10000	=200000*5%
3a	Building	3790790
	Notes payable		3790790
3b	Interest expense	379079		=3790790*10%
	Notes payable	620921
	Cash		1000000

Workings:
3
Annual installments	1000000
X PV factor	3.79079	=(1-(1.10)^-5)/0.10
Present value of note	3790790