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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Webb Corporation purchased an asset from Shaw Corporation on January 1, 2019. Shaw accepted a 3-year, non-interest-bearing note of $18,000 due December 31, 2021, in exchange for the asset. Neither the fair value of the asset nor that of the note is available. Webb’s incremental borrowing rate is 12%.

Required:

Prepare the journal entries to record the issuance of the note, retirement, and any interest expense on the books of Webb on each of the following dates:

  1. 1. January 1, 2019
  2. 2. December 31, 2019
  3. 3. December 31, 2020
  4. 4. December 31, 2021

1.

To determine

Journalize entries during January 1, 2019.

Explanation

Bonds:

Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Prepare journal entry:

DateAccount titles and ExplanationDebitCredit
January 1, 2019Asset (1)$12,812.04  
Discount on notes payable (2) $5,187.96
      Notes payable $18,000
(To record the exchange of note payable for cash and rights)  

Table (1)

  • Asset is increased. Therefore, debit asset account by $12,812.04.
  • Discount on notes payable is a contra liability and it is increased. Therefore, debit discount on notes payable account by $ $5,187.96.
  • Notes payable is a liability and it is increased. Therefore, credit notes payable account by $18,000

Note:  Present value of $1 from Table 3 of Time Value of money Module, where n=3, i= 12%...

2.

To determine

Journalize entries during December 31, 2019.

3.

To determine

Journalize entries during December 31, 2020.

4.

To determine

Journalize entries during December 31, 2021.

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