Exercise 14-16 On January 1, 2017, Blue Company makes the two following acquisit

Question

Exercise 14-16

On January 1, 2017, Blue 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.)

1. Purchases land having a fair value of $220,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $333,975. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $280,000 (interest payable annually on January 1). No. Date Account Titles and Explanation Debit Credit (a) 1. January 1, 2017 2. January 1, 2017 (b) 1. December 31, 2017 2. December 31, 2017

Explanation / Answer

Notes Payable

cash= 28000*6%= 16800

S.No. Journal Entry Debit Credit 1a Land 220000 Discount on notes payable 113975

Notes Payable

333975 1b Equipment 202474 discount on notes payable 77526 Notes payable 280000 (280000*0.3909=109452)+(280000*6%*5.53705=93022)=202474 2a interest expense 24200 Discount on notes Payable 24200 2b interest expense 22272 Discount on notes payable 5472 cash 16800 interest- (202474*11%= 22272)

cash= 28000*6%= 16800

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