On January 1, 2011, McLean Company makes the two followingacquisitions. Purchase
ID: 2434132 • Letter: O
Question
On January 1, 2011, McLean Company makes the two followingacquisitions.
Purchases land having a fair market value of $385,000.00 byissuing a 5-year, zero-interest-bearing promissory note in the faceamount of $648,748.10.
Purchases equipment by issuing a 6%, 8-year promissory notehaving a maturity value of $408,000.00 (interest payableannually).
The company has to pay 11% interest for funds from its bank.
(List multiple debit/credit entries from largest to smallestamount, e.g. 10, 5, 2. Round answer to 2 decimal places, e.g.12,250.00. For present value computations, use Tables in the text.Do not use a financial calculator.)
(a) Record the two journal entries that should be recorded byMcLean Company for the two purchases on January 1, 2011.
Description/Account
Debit Credit
Land 385,000.00
Discount on NotesPayable 263,748.10
NotesPayable 648,748.10
Equipment 255,984.25
Discount on NotesPayable 152,015.75
NotesPayable 408,000.00
(b) Record the interest at the end of the first year on bothnotes using the effective-interest method.
Description/Account
Debit Credit
InterestExpense 43,235.00
Discount on Notes Payable 43,235.00
InterestExpense 28,158.27
Cash 24,480.00
Discount on Notes Payable 3,678.27
Thank you in advance for your help, havingsome difficulty with the numbers in Red.
Explanation / Answer
land Notes Payable 648,748.10
Discount on Notes payable 263,748.10
Book Value 385,000.00
Interest 0.05
Interest Expense 19,250.00
Interest Expense 19,250.00
Discount on Notes payable
19,250.00
Equipment Notes Payable 408,000.00
Discount on Notes payable 45,237.78
Book Value 362,762.22
Interest 0.11
Interest Expense 39,903.84
Interest Expense 39,903.84
Discount on Notes payable
7,263.84
Cash
32,640.00 land Notes Payable 648,748.10
Discount on Notes payable 263,748.10
Book Value 385,000.00
Interest 0.05
Interest Expense 19,250.00
Interest Expense 19,250.00
Discount on Notes payable
19,250.00
Equipment Notes Payable 408,000.00
Discount on Notes payable 45,237.78
Book Value 362,762.22
Interest 0.11
Interest Expense 39,903.84
Interest Expense 39,903.84
Discount on Notes payable
7,263.84
Cash
32,640.00
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.