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

Question:

On January 1, 2020, Carter Company makes the two following acquisitions. 1. Purchases land having a fair value of $ 200,000 b

On January 1, 2020, 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. (a) Record the two journal entries that should be recorded by Carter 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 o decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account tities and enter o 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 2. January 1, 2020 (b) 1. December 31, 2020 2. December 31, 2020

Answers

Date Accounting titles & Explanations Debit Credit
a.
1. January 1, 2020 Land $         200,000.00
Discount on Notes Payable $         137,012.00
Notes Payable $        337,012.00
(To record purchase of land in exchange of zero interest bearing promissory note)
2. January 1, 2020 Equipment (=PV(11%,8,15000,250000,0)) $         185,673
Discount on Notes Payable
(250,000-185,673.7)
$           64,327
Notes Payable $        250,000.00
(To record purchase of equipment)
b.
1. December 31, 2020 Interest Expense (200000*11%) $           22,000.00
Discount on notes payable $          22,000.00
(To record interest expense)
2. December 31, 2020 Interest Expense (185673*11%) $           20,424
Discount on notes payable (20424.08-15000) $            5,424
Cash (250000*6%) $          15,000.00
(To record interest expense)
.

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