Question

Question 2 3.33 points Save Answ On January 1, 2019, Cuauhtémoc Company acquired a piece of machinery and signed a 24-month note for $30,000. The face value of the note includes the price of the machinery and interest. The note is to be paid in four $7,500 semi-annual installments. The value of the machinery is the present value of the four semi-annual payments discounted at an annual interest rate of 12%. The adjusting entries on December 31, 2019 would include: A debit to Interest Expense of $1,559.30 A credit to Notes Payable of $7,500 Ο Ο Ο Ο A debit to Discount on Notes Payable of $1,559.30 A debit to Interest Expense of $1,202.85

Answer 1

Present Value of Note

=7500×annitu factor @ 6% for 4 periods

=7500×3.4651

=$25,988

Interest for first 6 months

=25988×6%

=$1559.30

Note payable balance as on December 31

= 25988-(7500-1559.3)

=$20,047

Interest expense for the 6 month period ending on 31st December 2019

=20047×6%

=$1202.85.

Therefore correct answer would be "a debit to interest expense of $1202.85".