Part A:

The Montana Company paid for the acquisition of an equipment by signing a $100,000 three year 6% note on January 1, 2019 in favor of the equipments manufacturer. The interest on the note is paid annually. The market interest rate of the note with similar terms and condition is 10%. In addition, Montana also paid cash of $25,000 upfront.

1. Calculate the present value of the note and make a journal entry for the acquisition of the equipment on January 1, 2019. Show your calculations.

2. Prepare a journal entry for interest payments and interest expenses on December 31, 2019.