Bonita Limited has been experiencing increased customer demand for its specialty food products. To meet this demand, the company has bought additional refrigeration units to hold more inventory. To finance this purchase, Bonita issued a four-year noninterest-bearing note, with a face value of $640,000. The prevailing interest rate for similar instruments is 7%. The company agreed to repay the note in four equal instalments. Bonita used the effective interest method to amortize any premium or discount. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.

Using (1) factor tables, (2) a financial calculator, or (3) Excel function PV, prepare the journal entry at the date of purchase. (Hint: Refer to Chapter 3 for tips on calculating.) (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit

Prepare the journal entry at the end of the first year to record the payment and interest. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Titles and Explanation Debit Credit

Prepare the journal entry at the end of the second year to record the payment and interest. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit