PART A (Schedule 1): On January 1, 2008, Border Company purchased a truck. The c

Question

PART A (Schedule 1): On January 1, 2008, Border Company purchased a truck. The company signed a note agreeing to pay $300,000 on December 31, 2012 (i.e. single large payment). The market interest rate on January 1, 2008 for this note was 11%. The market interest rates at the end of 2008, 2009, 2010, 2011, and 2012 for this note were 9%, 10%, 9%, 11%, and 12%, respectively.

1. Prepare the journal entry to record the purchase of the truck (round up to the nearest dollar).

2. Prepare the journal entry on December 31, 2009.

3. Prepare the journal entry on December 31, 2012.

Explanation / Answer

Note Payable price = $300000 * PVIF(11%,5) = $300000 * 0.593 = $177900

Amortisation of discount on Note payable: Period cash interest interest expense discount amortised carrying value (CV) 1/1/2008 177900 12/31/2008 0 16011 (9%of CV) 16011 193911 12/31/2009 0 19391(10% of 193911) 19391 213302 12/31/2010 0 19197(9% of 213302) 19197 232499 12/31/2011 0 25575(11% of 232499) 25575 258074 12/31/2012 0 30969(12% of 258074) 30969 289043 111143

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