Question
(a) On January 1, 2020, Metlock Inc. purchased land that had an assessed value of $316,000 at the time of purchase. A $518,000, zero-interest-bearing note
(a) On January 1, 2020, Metlock Inc. purchased land that had an assessed value of $316,000 at the time of purchase. A $518,000, zero-interest-bearing note due January 1, 2023, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2020, and the interest expense to be reported in 2020 related to this transaction. (Round answers to 0 decimal places, e.g. 38,548.)
Land to be recorded at January 1, 2020 | $ | |
Interest expense to be reported | $ |
(b) On January 1, 2020, Bonita Furniture borrowed $6,100,000 (face value) from Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Bonita Furniture agreed to sell furniture to this customer at lower than market price. A 10% rate of interest is normally charged on this type of loan. Prepare the journal entry to record this transaction. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation | Debit | Credit |
Determine the amount of interest expense to report for 2020. (Round answer to 0 decimal places, e.g. 38,548.)
Interest expense to be reported for 2020 | $ |
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