Question
*PLEASE SHOW WORK USING PV TABLES* On January 1, Vale Inc. acquires equipment with a 10-year useful life by issuing a two-year, zero-interest bearing installment
On January 1, Vale Inc. acquires equipment with a 10-year useful life by issuing a two-year, zero-interest bearing installment note payable. The market rate is 14% for similar transactions. Terms are $7000 cash payment immediately plus payments of $5000 cash at the end of the next two years. The company ises the effective interest method to amortize any discount on note payable and the straight-line method to record depreciation expense.
Required
a. Prepare the entry to record the purchase of this equipment.
b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense.
c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense.
d. Assume instead that Vale exchanged 100 shares of its own $1 par common stock along with $7,000 cash for the equipment. The stock was not actively traded, but the equipment was estimated to have a fair value at the date of acquisition of $16,000. Prepare the entry to record the purchase.
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