Tradewell Rentals purchased a piece of equipment with a FMV ol $11,348 in exchange lor a five-year, non-interest-bearing note with a face value ol $20,000. REQUIRED:

a. Compute the effective interest rate on the note payable.

b. Prepare the journal entry to record the purchase.

c. How much interest expense should Tradewell recognize on the note payable during the first year? 570 Part 4 Liabilities and Stockholders’ Equity: A Closer Look Ell —6 (Accounting for notes payable With various stated interest rates) El 1-7 (Determining the effective interest rate) El 1-8 (Financing asset purchases with notes payable) El 1-9 (Inferring an effective interest rate from the financial statements)

d. What is the balance sheet value of the note at the end of the first year?

e. Will the interest expense recognized by Tradewell in the second year be greater than, equal to, or less than the interest expense recognized in the first year? Why?

f. Will the interest expense recognized in the third year be greater than, equal to, or less than the interest expense recognized in the second year?