Problem 2: Deferred-Payment Contract

Longhorn Company purchased equipment by issuing a $600,000, ten-year, zero-interest note payable with a market rate of interest of 12%. The note will be paid off in ten $60,000 installments at the end of each year. (Round all figures to nearest whole dollar)

Instructions:

(a) Prepare the journal entry to record the purchase.

(b) Prepare the journal entry to record the first loan payment of $60,000 and interest expense at the end of the first year.

(c) Prepare the journal entry to record the second loan payment of $60,000 and interest expense at the end of the second year.