Question

In: Accounting

On January 1, 2020, Pearl Company makes the two following acquisitions. 1. Purchases land having a...

On January 1, 2020, Pearl Company makes the two following acquisitions.

1. Purchases land having a fair value of $360,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $566,467.
2. Purchases equipment by issuing a 7%, 9-year promissory note having a maturity value of $520,000 (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 Pearl Company for the two purchases on January 1, 2020.
(b) Record the interest at the end of the first year on both notes using the effective-interest method.


(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.)

No.

Date

Account Titles and Explanation

Debit

Credit

(a) 1.

January 1, 2020

enter an account title to record the first purchase on January 1, 2017

enter a debit amount

enter a credit amount

enter an account title to record the first purchase on January 1, 2017

enter a debit amount

enter a credit amount

enter an account title to record the first purchase on January 1, 2017

enter a debit amount

enter a credit amount

2.

January 1, 2020

enter an account title to record the second purchase on January 1, 2017

enter a debit amount

enter a credit amount

enter an account title to record the second purchase on January 1, 2017

enter a debit amount

enter a credit amount

enter an account title to record the second purchase on January 1, 2017

enter a debit amount

enter a credit amount

(b) 1.

December 31, 2020

to record the interest on the first note using the effective-interest method on December 31, 2017

enter a debit amount

enter a credit amount

to record the interest on the first note using the effective-interest method on December 31, 2017

enter a debit amount

enter a credit amount

2.

December 31, 2020

to record the interest on the second note using the effective-interest method on December 31, 2017

enter a debit amount

enter a credit amount

to record the interest on the second note using the effective-interest method on December 31, 2017

enter a debit amount

enter a credit amount

to record the interest on the second note using the effective-interest method on December 31, 2017

enter a debit amount

enter a credit amount

Solutions

Expert Solution

No, Date Account titles and explanation Debit Credit
(a)
1. Jan 1, 2020 Land $360000
Discount on notes payable (566467-360000) $206467
Note payable $566467
(To record land purchased)
2 Jan 1, 2020 Equipment $381465
Discount on notes payable (520000-381465) $138535
Notes payable $520000
(To record equipment purchased)
(b)
1 Dec 31, 2020 Interest expense (360000*12%) $43200
Discount on Notes payable $43200
(To record interest)
2 Dec 31, 2020 Interest expense (381465*12%) $45776
Interest payable (520000*7%) $36400
Discount on Notes payable (45776-36400) $9376
(To record interest)

Calculation of the Present value of Notes payable of Equipment

Present value of $520000 in 9 years @ 12% (520000*0.36061) $187517
Present value of (520000*7%)= 36400 for 9 years @10% annually (36400*5.32825) 193948
Present value of Notes payable of Equipment $381465

0.36061, is the Present value of $1 in 9 years @ 12%

5.32825, is the Present value of ordinary annuity for 9 years @ 12%


Related Solutions

On January 1, 2020, Blossom Company makes the two following acquisitions. 1. Purchases land having a...
On January 1, 2020, Blossom Company makes the two following acquisitions. 1. Purchases land having a fair value of $160,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $251,763. 2. Purchases equipment by issuing a 7%, 8-year promissory note having a maturity value of $270,000 (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 Blossom Company for the two...
On January 1, 2020, Larkspur Company makes the two following acquisitions. 1. Purchases land having a...
On January 1, 2020, Larkspur Company makes the two following acquisitions. 1. Purchases land having a fair value of $320,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $485,782. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $360,000 (interest payable annually). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Larkspur Company for the two...
On January 1, 2020, Oriole Company makes the two following acquisitions. 1. Purchases land having a...
On January 1, 2020, Oriole Company makes the two following acquisitions. 1. Purchases land having a fair value of $150,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $252,759. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $180,000 (interest payable annually). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Oriole Company for the two...
On January 1, 2020, Shamrock Company makes the two following acquisitions. 1. Purchases land having a...
On January 1, 2020, Shamrock Company makes the two following acquisitions. 1. Purchases land having a fair value of $330,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $483,153. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $380,000 (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 Shamrock Company for the two...
On January 1, 2020, M Company makes the two following acquisitions. 1. Purchases land having a...
On January 1, 2020, M Company makes the two following acquisitions. 1. Purchases land having a fair value of $290,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $467,048. 2. Purchases equipment by issuing a 7%, 9-year promissory note having a maturity value of $450,000 (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 M Company for the two...
On January 1, 2020, Culver Company makes the two following acquisitions. 1. Purchases land having a...
On January 1, 2020, Culver Company makes the two following acquisitions. 1. Purchases land having a fair value of $290,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $467,048. 2. Purchases equipment by issuing a 7%, 9-year promissory note having a maturity value of $450,000 (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 Culver Company for the two...
On January 1, 2020, Shamrock Company makes the two following acquisitions. 1. Purchases land having a...
On January 1, 2020, Shamrock Company makes the two following acquisitions. 1. Purchases land having a fair value of $330,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $483,153. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $380,000 (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 Shamrock Company for the two...
On January 1, 2017, Marigold Company makes the two following acquisitions. 1. Purchases land having a...
On January 1, 2017, Marigold Company makes the two following acquisitions. 1. Purchases land having a fair value of $240,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $404,414. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $390,000 (interest payable annually on January 1). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Marigold Company...
On January 1, 2017, Sheffield Company makes the two following acquisitions. 1. Purchases land having a...
On January 1, 2017, Sheffield Company makes the two following acquisitions. 1. Purchases land having a fair value of $150,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $252,759. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $180,000 (interest payable annually on January 1). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Sheffield Company...
Exercise 14-16 On January 1, 2017, Larkspur Company makes the two following acquisitions. 1. Purchases land...
Exercise 14-16 On January 1, 2017, Larkspur Company makes the two following acquisitions. 1. Purchases land having a fair value of $290,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $488,667. 2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $330,000 (interest payable annually on January 1). The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT