E14-16. (Entries for Zero-Interest-Bearing Notes) (LO 3) On January 1, 2017, Ellen Carter Company makes...

E14-16. (Entries for Zero-Interest-Bearing Notes) (LO 3)

On January 1, 2017, Ellen Carter Company makes the two following acquisitions.

1.) Purchases land having a fair value of $200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $337,012.

2.) Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $250,000 (interest payable annually).

The company has to pay 11% interest for funds from its bank. Instructions (Round answers to the nearest cent.)

(a) Record the two journal entries that should be recorded by Ellen Carter Company for the two purchases on January 1, 2017. (b) Record the interest at the end of the first year on both notes using the effective-interest method.

Is the 11% (the company has to pay to the bank) an issue cost ? Is there a market rate on note payable for the purchase of equipment from the second transaction ?

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