hapter 10-3 6 Help Save& Exit Submit Check my work On January 1,2018, Byner Comp
ID: 2333726 • Letter: H
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hapter 10-3 6 Help Save& Exit Submit Check my work On January 1,2018, Byner Company purchased a used tractor. Byner paid $7000 down and signed a noninterest- bearing note requiring $40,000 to be paid on December 31, 2020. The fair value of the tractor is not determinable. An interest rate of 10% property reflects the time value of money for this type of loan agreement. The company's fiscal year-end is December 31. FV of $1, PV of $1, EVA of $1, PVA of $t, FVAD of $1 and PVAD of $) (Use appropriate factorts) from the tables provided.) Required: 1. Prepare the journal entry to record the acquisition of the tractor 2. How much interest expense will the company include in its 2018 and 2019 income statements for this note? 3. What is the amount of the liability the company will report in its 2018 and 2019 balance sheets for this note? Complete this question by entering your answers in the tabs below Req i R2 and 3 Prepare the journal entry to record the acquisition of the tractor. (If no entry is required for a transaction/event, select "N journal entry required" in the first account feld. Do not round intermediate calculations. Round your answers to the near whole dollars Prev 1of51 Next > 8 3Explanation / Answer
Calculation of Value of Used Truck
Year
Payment
PV factor @10%
Discounted cash outflow
2018
$ 7,000.00
1.000000
$ 7,000.00
2020
$ 40,000.00
0.7513148
$ 30,052.59
Present value of payments/ Value of truck
$ 37,052.59
Journal Entry at the time of Purchase of Equipment (Truck)
Date
General Journal
Debit
Credit
Jan 1 2018
Equipment
$ 37,052.59
Cash
$ 7,000.00
Notes payable
$ 30,052.59
(Equipment purchased)
Value of Notes payable is $ 40000 x Discount factor at 10% interest rate. By doing this we calculate the value of notes payable on which interest will be paid and total payment will include interest at the end of 2020.
Requirement 2
Interest Expense to be shown in Income Statement
Year
Beginning value of Notes payable
Interest
Ending balance of Notes payable
2018
$ 30,052.59
$ 3005.26*
$ 33,057.85
2019
$ 33,057.85
$ 3305.79**
$ 36,363.64
2020
$ 36,363.64
$ 3636.36***
$ 40,000.00
*30052.59*10%
**33057.85*10%
***36363.64*10%
Requirement 3
Amount of liability to be shown
In 2018
Notes payable—$ 30052.50
Interest on Notes payable----$ 3005.26
In 2019
Notes payable—$ 30052.50
Interest on Notes payable----$ 6311.04*
*Interest total of two years
Calculation of Value of Used Truck
Year
Payment
PV factor @10%
Discounted cash outflow
2018
$ 7,000.00
1.000000
$ 7,000.00
2020
$ 40,000.00
0.7513148
$ 30,052.59
Present value of payments/ Value of truck
$ 37,052.59
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