Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter C, Problem 2PB
Recording Equipment Purchase with Two-Year Note
Southtown Corporation purchased equipment and in exchange signed a two-year promissory note. The note requires Southtown to make a single payment of $100,000 in two years. Southtown has other promissory notes that charge interest at the annual rate of 6 percent.
Required:
- 1. Compute the present value of the note, rounded to the nearest dollar, using Southtown’s typical interest rate of 6 percent.
- 2. Show the
journal entry to record the equipment purchase (round to the nearest dollar). - 3. Show the
adjusting journal entry at the end of the first year to record interest on the note. - 4. Show the adjusting journal entry at the end of the second year to record interest on the note (but do not record the payment of $100,000 yet).
- 5. Show the journal entry at the end of the second year to record payment of the $100,000.
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Students have asked these similar questions
A one year note payable is issued by a bank to ABC company to purchase a photocopy
machine valued at $7,000. The amount owing to the bank for the note must be paid back
in one year. Hence, this is a short-term note payable. The interest rate charged by the
bank is 12%. Interest charged on the note is included in the payment of $10,000 to be
paid to the bank at the end of the year.
Required:
(a) Calculate the present value of the note (PV).
(a)
(b) Record the journal entry:
i. on the day the asset is purchased
General Journal
POST
DATE ACCOUNT TITLE AND EXPLANATION REF DEBIT CREDIT
ii. on the day the note payable is paid back to the bank.
General Journal
POST
DATE ACCOUNT TITLE AND EXPLANATION REF. DEBIT CREDIT
AND E
Canvas Problem: Long-Term Notes Payable
XYZ, Inc. has purchased new equipment. The
contract with the manufacturer requires XYZ to make
a $10,000 down payment and to sign a note to pay
$50,000 per year at the end of each of the next 6
years at an annual interest rate of 8%. Each equal
payment of $50,000 includes principal and interest
on the unpaid balance.
Instructions: Answer the following questions.
a. At what amount should XYZ record the
equipment on the date of acquisition? Use the
present value tables and Excel.
b. Prepare the journal entry to record the
equipment purchase.
c. Prepare the journal entries to record the
payments XYZ makes at the end of the first and
the end of the second year.
Bull City Industries is considering issuing a $100,000, 7% note to a creditor on account.
Assume a 360-day year. For a compound transaction, if an amount box does not require an entry, leave it blank.
a. If the note is issued with a 45-day term, journalize the entries to record:
the issuance of the note.
the payment of the note at maturity.
b. If the note is issued with a 90-day term, journalize the entries to record:
the issuance of the note.
the payment of the note at maturity.
Chapter C Solutions
Fundamentals Of Financial Accounting
Ch. C - Prob. 1QCh. C - Prob. 2QCh. C - Which of the following is most likely to be an...Ch. C - Prob. 4QCh. C - Prob. 5QCh. C - Prob. 6QCh. C - Prob. 7QCh. C - You are saving up for a Mercedes-Benz SLR McLaren,...Ch. C - Prob. 2MCCh. C - Prob. 3MC
Ch. C - Prob. 4MCCh. C - Prob. 5MCCh. C - Assume you bought a car using a loan that requires...Ch. C - Assume you bought a car using a loan that requires...Ch. C - Which of the following statements is true? a. When...Ch. C - Prob. 9MCCh. C - Prob. 10MCCh. C - Prob. 1MECh. C - Prob. 2MECh. C - Prob. 3MECh. C - Prob. 4MECh. C - Prob. 5MECh. C - Prob. 6MECh. C - Prob. 7MECh. C - Prob. 8MECh. C - Prob. 9MECh. C - Prob. 10MECh. C - Prob. 11MECh. C - Prob. 12MECh. C - Prob. 1ECh. C - Prob. 2ECh. C - Prob. 3ECh. C - Prob. 4ECh. C - Prob. 5ECh. C - Computing Bond Issue Proceeds and Issue Price Your...Ch. C - Computing Missing Present or Future Values...Ch. C - Prob. 1CPCh. C - Prob. 2CPCh. C - Prob. 3CPCh. C - Prob. 4CPCh. C - Prob. 1PACh. C - Recording Equipment Purchase with Two-Year Note...Ch. C - Prob. 3PACh. C - Prob. 4PACh. C - Prob. 1PBCh. C - Recording Equipment Purchase with Two-Year Note...Ch. C - Prob. 3PBCh. C - Prob. 4PB
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