On January 1, 2016, Monroe Company purchased equipment from Edelstein Company by
ID: 2563069 • Letter: O
Question
On January 1, 2016, Monroe Company purchased equipment from Edelstein Company by issuing a five-year, 2% note with a face value of $300,000. Interest is paid annually each December 31. The market value of the equipment purchased is not readily determinable. It was determined that, for similar transactions 8% was a reasonable rate of interest.
Required:
1-Prepare the journal entry for Monroe Company on January 1, 2016, to record the purchase of the equipment.
2-Prepare an amortization table for the five-year term of the note.
3-Prepare the journal entries for the first three years to record the interest expense and payment towards the note.
Pleas show all calculations; thanks.
Explanation / Answer
Annual interest = 300000*.02= 6000
Price of equipment =[PVA8%,5*Interest]+[PVF8%,5*face value]
=[3.99271*6000]+[.68058*30000]
= 23956.26+ 204174
= $ 228130.26 [rounded to 228130]
2)
3)
Date Account debit credit jan 12016 Equipment 228,130 Discount on note payable 71870 Note payable 300,000 [being equipment purchased against note]Related Questions
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