Andrew Co., decided to purchase a new truck on January 2, 2017 and issues a $200,000, 4 year zero interest bearing note to the GMC Truck corporation when the prevailing rate of interest for similar notes is 6%. Andrew will make equal payments of $50,000 at the end of each year over the life of the note.

Required:

1)Calculate the amount that Andrew should value the truck.

2)Prepare the entry to record the purchase on January 1, 2017.

3)Prepare the entry to record the payment and interest at the end of the first (2017) and second (2018) years assuming the company uses the effective interest rate method.