Question
On January 1, 2020, Novak Company makes the two following acquisitions. 1. Purchases land having a fair value of $360,000 by issuing a 4-year, zero-interest-bearing
On January 1, 2020, Novak Company makes the two following acquisitions. 1. Purchases land having a fair value of $360,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $566,467. 2. Purchases equipment by issuing a 7%, 9-year promissory note having a maturity value of $520,000 (interest payable annually). The company has to pay 12% interest for funds from its bank.
(a) Record the two journal entries that should be recorded by Novak Company for the two purchases on January 1, 2020.
(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, eg. 1.25124 and the final answer to decimal places eg. 58,971. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Credit No. Date (a) January 1, 1. 2020 Account Titles and Explanation Land 360000 Discount on Notes Payable 206467 Notes Payable 566467 2. January 1, 2020 Equipment 483768 Discount on Notes Payable 36232 Notes Payable 520000 (b) 1. December 31, 2020 Interest Expense 43200 Discount on Notes Payable 43200 2. December 31, 2020 Interest Expense 58052 Discount on Notes Payable 21652 Cash 36400Step by Step Solution
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