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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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On January 1, 2019, Sanders Corporation purchased equipment having a fair value of $68,301.30 by issuing a non-interest-bearing, $100,000, 4-year note due December 31, 2022.

Required:

Prepare the journal entries to record (1) the purchase of the equipment, (2) the annual interest charges over the life of the note, and (3) the repayment of the note.

1.

To determine

Prepare journal entry to record the purchase of the equipment.

Explanation

Note exchanged for assets or services

A note payable or note receivable is exchanged with the assets (cash or noncash) or services. But the contract interest rate in such notes may not indicate the yield rate. The value of the assets or services thus exchanged for the note establishes the market rate.

Prepare journal entry to record the purchase of the equipment.

DateAccount Titles and ExplanationDebitCredit
January 1, 2019Equipment$68,301.30  
 Discount on notes payable (balancing figure)$31,698...

2.

To determine

Prepare journal entry to record annual interest charges over the life of the note.

3.

To determine

Prepare journal entry to record repayment of note.

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