Question 1 On January 1, 2014, Ellen Greene Company makes the two following acqu

Question

Question 1 On January 1, 2014, Ellen Greene Company makes the two following acquisitions. 1. Purchases land having a fair value of $230,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $405,339 2. Purchases equipment by issuing a 796, 9-year promissory note having a maturity value of $273,000. (interest payable annually) The company has to pay 12% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Ellen Greene Company for the two purchases on January 1, 2014 (b) Record the interest at the end of the first year on both notes using the effective-interest method (Round answers to 0 decimal places, e.g. 38,548. 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.)

Explanation / Answer

No. Date Account Titles and explanations Debit Credit $ $ a. January 1 2014 Land 230,000 Note payable 230,000 To record purchase of land against issue of promissory note January 1 2014 Equipment 273,000 Note payable 273,000 To record purchase of equipment against issue of promissory note b. December 31 2014 Interest expense 27,600 Note payable 27,600 To record interest expense on note payable December 31 2014 Interest expense 19,110 Interest expense payable 19,110 To record interest expense due on note payable

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