On January 1, 2017, Flint Company makes the two following acquisitions. The comp

Question

On January 1, 2017, Flint Company makes the two following acquisitions.

The company has to pay 12% interest for funds from its bank.

(Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 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

January 1, 2017

January 1, 2017

December 31, 2017

December 31, 2017

1. Purchases land having a fair value of $300,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $528,703. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $340,000 (interest payable annually on January 1).

Explanation / Answer

(3,00,000 × 12% = 36,000)

Interest expense

Note:- At point (a) 2. Calculate discounted factor at 12%.

No. Date Account Titles and Explanations debit credit (a) 1 January 1,2017 Land 3,00,000 Discount on note payable 228,703 Note payable 528,703 (3,00,000 - 228,703) ( To record purchase of land in exchange for zero interest bearing promissory note) 2 January 1,2017 Equipment 231,303 Discount on note payable 108,697 Note payable 340,000 (340,000 × 0.36061= 122,607) + (340,000 × 6% × 5.32824= 108,696) = 231,303 , 340,000- 231,303 = 108,697 (To record issuance of 6% , 9 - year promissory note) (b) 1. December 31,2017 Interest expense 36,000 Discount on note payable 36,000

(3,00,000 × 12% = 36,000)

(To record interest) 2 December 31,2017

Interest expense

27,756 Cash 20,400 Discount on note payable 7,356 (231,303 × 12% = 27,756, 340,000 × 6% =20,400 , 27,756 - 20,400 = 7356 ( To record interest and amortized discount )

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