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On January 2, 2009 Dennisson Inc. purchased a piece of machinery and signed a noninterest bearing note in its payment. The Note requires the Company
- On January 2, 2009 Dennisson Inc. purchased a piece of machinery and signed a noninterest bearing note in its payment. The Note requires the Company to pay $100,000 on December 31, 201 Dennisson is not sure what interest rate appropriately reflects the time value of money. However, the price lists indicate the machine could have been purchased for a price of $79,383.
Required:
- Show how Dennisson should record his transaction in its General Journal on January 2, 2009 recognizing the Discount on Notes Payable.
- What is the effective interest rate implicit in the transaction/Show computation?
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