On January 1, 2014, Guillemette Inc. makes the following acquisitions:
1. Purchases land having a fair market value of $300,000 by issuing a five-year, non-interest-bearing promissory note in the face amount of $505,518.
2. Purchases equipment by issuing an eight-year, 6% promissory note having a maturity value of $275,000 (interest payable annually).
The company has to pay 11% interest on funds from its bank.
Instructions
(a) Record Guillemette's journal entries on January 1, 2014, for each of the purchases.
(b) Record the interest at the end of the first year on both notes using the effective interest method.