Exercise 14-16 No. Date Account Titles and Explanation Debit Credit January 1, 2
ID: 2456823 • Letter: E
Question
Exercise 14-16
No.
Date
Account Titles and Explanation
Debit
Credit
January 1, 2014
January 1, 2014
December 31, 2014
December 31, 2014
Exercise 14-16
On January 1, 2014, Ellen Greene Company makes the two following acquisitions.1. Purchases land having a fair value of $202,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $325,323. 2. Purchases equipment by issuing a 7%, 8-year promissory note having a maturity value of $277,000. (interest payable annually).
The company has to pay 10% 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.)
No.
Date
Account Titles and Explanation
Debit
Credit
(a) 1.January 1, 2014
2.January 1, 2014
(b) 1.December 31, 2014
2.December 31, 2014
Explanation / Answer
Date Title Debit credit 1 jan 2014 Land 202000 Discount on note payable 123323 Note payable 325323 [being land purchased and note issued] 1 jan equipment 277000 Note payable 277000 [being equipment purchased] 31 dec 2014 Interest expense 32532.30 Discount on note payable 32532.30 [being interest on note 1 recorded] 31 dec Interest expense 19390 cash (277000* .07) 19390
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