Question
On January 1, 2017, Ellen Carter Company makes the two following acquisitions. 1. Purchases land having a fair value of $200,000 by issuing a 5-year,
On January 1, 2017, Ellen Carter Company makes the two following acquisitions.
1. | Purchases land having a fair value of $200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $337,012. | |
2. | Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $250,000 (interest payable annually on January 1). |
The company has to pay 11% interest for funds from its bank.
(a) | Record the two journal entries that should be recorded by Ellen Carter Company for the two purchases on January 1, 2017. | |
(b) | Record the interest at the end of the first year on both notes using the effective-interest method. |
(Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. 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.)
No. | Date | Account Titles and Explanation | Debit | Credit |
---|---|---|---|---|
(a) 1. | January 1, 2017 | enter an account title to record the first purchase on January 1, 2017 | enter a debit amount | enter a credit amount |
enter an account title to record the first purchase on January 1, 2017 | enter a debit amount | enter a credit amount | ||
enter an account title to record the first purchase on January 1, 2017 | enter a debit amount | enter a credit amount | ||
2. | January 1, 2017 | enter an account title to record the second purchase on January 1, 2017 | enter a debit amount | enter a credit amount |
enter an account title to record the second purchase on January 1, 2017 | enter a debit amount | enter a credit amount | ||
enter an account title to record the second purchase on January 1, 2017 | enter a debit amount | enter a credit amount | ||
(b) 1. | December 31, 2017 | to record the interest on the first note using the effective-interest method on December 31, 2017 | enter a debit amount | enter a credit amount |
to record the interest on the first note using the effective-interest method on December 31, 2017 | enter a debit amount | enter a credit amount | ||
2. | December 31, 2017 | to record the interest on the second note using the effective-interest method on December 31, 2017 | enter a debit amount | enter a credit amount |
to record the interest on the second note using the effective-interest method on December 31, 2017 | enter a debit amount | enter a credit amount | ||
to record the interest on the second note using the effective-interest method on December 31, 2017 |
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