(Valuing liabilities, LO 1) On March 31, 2005 Etzikom Inc. (Etzikom) purchased a corporate jet from the manufacturer for $7,500,000. Etzikom paid $500,000 in cash to the manufacturer and received a four-year, $7,000,000, interest-free loan for the remainder of the purchase price. The terms of the loan require Etzikom to pay the manufacturer $1,750,000 on March 31 of each of the next four years, beginning on March 31, 2006.

a. What alternatives exist for reporting the liability to the manufacturer of the jet? What are the problems and benefits of the alternative approaches?

b. Prepare the journal entry that Etzikom should make to record the purchase of the jet. Explain the amount that you have recorded for the jet on the balance sheet.

c. Prepare the journal entries that Etzikom should make on March 31 of 2005 through 2009 to record payments on the loan.

d. How much should Etzikom report as a liability for the loan on its balance sheet on December 31, 2005 through 2009?