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Given the following information, prepare the following journal entries. A firm purchases a piece of equipment for its assembly line by issuing a 3-year, 5%
Given the following information, prepare the following journal entries.
A firm purchases a piece of equipment for its assembly line by issuing a 3-year, 5% interest bearing note for $100,000 when the market rate for such notes is 4%. The firm will make interest payment at the end of each year and then pay the full principle balance at the end of the 3-year term. The firm uses the fair value of the note as the estimate of the fair value of the piece of equipment. Show your calculations for the fair value of the equipment at the date of purchase and for the periodic interest expense.
a) Date of purchase
b) End of first year
c) End of second year
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