Question

On January 1, 2020, Shamrock Company makes the two following acquisitions. 1. Purchases land having a fair value of $160,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $257,682. Purchases equipment by issuing a 7%, 8-year promissory note having a maturity value of $230,000 (interest payable annually). 2. The company has to pay 10% interest for funds from its bank. (a) (b) Record the two journal entries that should be recorded by Shamrock Company for the two purchases on January 1, 2020. 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 O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Please include how you did calculations especially if you used a financial calculator.

Answer 1

Journal entries

Transaction	Title and Description	Debit	Credit
1.	Land	160,000
	Discount on notes payable	97,682
	Notes payable		257682
	(Being land purchased)
2.	Equipment	$193,186.89
	Discount on notes payable	$36,813.11
	Notes payable		$230,000
	(Being equipment purchased)

Computation of discount on notes payable

Maturity value		$230,000
PV of note $230,000 due in 8 years at10% -230000*0.4665	$107,295
PV of $230,000*7% = $16,100 Payable annually at 10%= 16,100 * 5.3349	$85,891.89	($193,186.89)
Discount on notes payable		$36,813.11

2.

Date	Particulars	Debit	Credit
Dec 31,2020	interest expense	$16000
	Discount on notes payable ($160,000*10%)		$16000
	(To record interest expense)
Dec 31,2020	interest expense	$35,418.69
	Discount on notes payable ($193,186.89*10%)		19,318.69
	Cash($230,000*7%)		$16,100
	(to record interest expense)

To calculate PVF @10% for 8 years using calculator

Click 1/1.1 '=' then again' =' soon for 7 times we get 0.4665 and then click GT we get PVAF which is 5.3349

Alternatively u can also use excel to calculate.