On January 1, 2021, Enrich Company purchased a machine under each of the following terms:

a. P100,000 down payment

b. Four annual payments of P200,000, the first installment note to be paid on December

31, 2021.

The fair value of the machine is not clearly determinable on the date of the acquisition.

The prevailing rate of interest for this type of obligation is 10%. The present value factors at

10% for four periods are:

Present value of 1

.683

Present value of ordinary annuity of 1 3.170

Required :

1. Compute the amount that will be capitalized as the cost of the equipment.

2. Prepare the journal entry for the acquisition of the equipment.