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

Question

On January 1, 2017, Monty Company makes the two following acquisitions. 1. Purchases land having a fair value of $250,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $379,518. 2. Purchases equipment by issuing a 796, 8-year promissory note having a maturity value of S 290,000 (interest payable annually on January 1) The company has to pay 11% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Monty Company for the two purchases on January 1, 2017 (b) Record the interest at the end of the first year on both notes using the effective-interest method. (Round present value factor calculations to S decimal places, e.g. 1.25124 and the final answer to O 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 (a) 1. January 1, 2017 2. January 1, 2017 (b) 1. December 31, 2017

Explanation / Answer

Hi,

Entries to record two purchases on January 1, 2017 by Monty Company will be as follows;

1.

2.

is considered as fair value of asset exchanged

Entries for Interest at the end of first year will be as follows

1.

2.

Please comment for any clarification required.

Account Title and Explanation Debit Amount Credit Amount Land (At fair value)              2,50,000 Discount on Promissory Note (face value of P. Note - fair value)              1,29,518 4-year, Zero-interes-bearing Promissory Note (At face value)              3,79,518

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---