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, 12%, $630,000 note in exchange for a tract of land. The current market rate of interest is 12%.
2. Lambert acquired some office equipment with a fair value of $109,786 by issuing a one-year, $116,000 note. The stated interest on the note is 6%.
3. The company purchased a building by issuing a two-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.

1: Record the purchase of land in Situation A. 2: Record the interest expense at year end for Situation A. 3: Record the purchase of office equipment in Situation B. 4: Record the interest expense at year end for Situation B. 5: Record the purchase of the building in Situation C. 6: Record the interest expense at year end for Situation C.

Answer 1

S. No	Account Tittle & Explanation	Debit $	Credit $
	Situation-A Purchase of Land
1	Land	6,30,000
	12% Notes Payable		6,30,000
	To Recor purchase of Land
2	Interest expense	75,600
	Cash (630000*12%)		75,600
	TO Record Interest expense
	Situation- B : Accquired Equipment
1	Office equipment	1,09,786
	Discount on notes payable	6,214
	Note Payable		1,16,000
	To Record acquired of Equipment
2	Interest expenses	13,174
	Discount on notes payable		6,214
	Cash ($116000*6%)		6,960
	TO Record Interest expense
3	Note Payable	1,16,000
	Cash		1,16,000
	TO Record Repayment of Note Payable
	Situation-C: Purchase of Land
1	Building ( Refer W//Note)	17,35,500
	Note Payable		17,35,500
	To Record purchase of Building
2	Interest expenses (1735500*10%)	1,73,550
	Note payable	8,26,450
	Cash		10,00,000
	TO Record Interest expense

Working Note

($1,000,000 x PVAF of 10%, 2 year)

$1,000,000 x 1.7355= $1735500

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