PRESENT VALUES Ramon Company signed notes to make the following two purchases on January 1, 2009:

a. a new truck for $60,000, with payment deferred until December 31, 2010. The appropriate interest rate is 9 percent compounded annually.

b. a small building from Wandrow Builders. The terms of the purchase require a

$75,000 payment at the end of each quarter, beginning March 31, 2009, and ending June 30, 2011. The appropriate interest rate is 2 percent per quarter.

Required:

. Prepare the cash flow diagrams for these two purchases.

. Prepare the entries to record these purchases in Ramon’s journal.

. Prepare the cash payment and interest expense entries for purchase b at March 31, 2009, and June 30, 2009.

. Prepare the adjusting entry for purchase a at December 31, 2009.

Exercise