Exercise 14-16 On January 1, 2017, Pearl Company makes the two following acquisi
ID: 2338069 • Letter: E
Question
Exercise 14-16
On January 1, 2017, Pearl Company makes the two following acquisitions.
The company has to pay 11% interest for funds from its bank.
(Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
No.
Date
Account Titles and Explanation
Debit
Credit
January 1, 2017
January 1, 2017
December 31, 2017
December 31, 2017
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1. Purchases land having a fair value of $280,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $425,060. 2. Purchases equipment by issuing a 7%, 8-year promissory note having a maturity value of $370,000 (interest payable annually on January 1).Explanation / Answer
Required journal entries are as prepared below: date Accounts and explanation Debit ($) Credit ($) (a) 1-Jan-17 Land 280000 Discount on Notes Payable (425060-280000) 145060 Notes Payable 425060 ( To record the acquisition of land by the exchange of promissory note) 1-Jan-17 Equipment 293837.206 Discount on Notes Payable 76162.7943 Notes Payable 370000 ( To record the acquisition of equipment by the exchange of promissory note) present value at 11%,8 years annuity and present value factor used(370000*0.434926)+(370000*5.146123)*7% (b) 31-Dec-17 Interest Expense (280,000*.11) 30,800 Discount on Notes payable 30,800 To record discount amortization 31-Dec-17 Interest Expense (293837.206*.11) 32,322 Discount on Notes payable 6,422 Cash (370000*7%) 25,900 To record discount amortization
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