Note Payable Exchanged for a Plant Asset (Deferred Payment Arrangement). Hoppie Products signed a contract with Coleman Manufacturing to design, develop, and produce a specialized plastic molding machine for its factory operations. The machine is not currently sold to the public. Hoppie issued a 3%, 8-year, $690,000 note payable to Coleman to pay for the machine. If Hoppie were required to borrow at a commercial bank to finance the acquisition, it would have incurred the current market rate of 6%. Assume that all transactions occurred at the beginning of the current fiscal year (January 1). Interest is paid at the end of each year.
Required
- a. Prepare the
journal entry required to record the asset acquisition. - b. Prepare the amortization table for the note payable.
- c. Record the interest expense for the first 2 years.
- d. Indicate the effects of these transactions (i.e., the asset acquisition and the interest payment and amortization of discount) on the current year-end
balance sheet (ignore cash effects), income statement, and cash flow statement under the direct and indirect methods. - e. Independent of parts (a)–(d), assume that the molding machine is sold to the general public on a regular basis and has a fair value of $560,000. Prepare the journal entry to record the acquisition of the machine from Coleman.
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