McGill Corporation purchased some equipment by issuing a $20,000 non-interest-be
ID: 2593471 • Letter: M
Question
McGill Corporation purchased some equipment by issuing a $20,000 non-interest-bearing, four-year note when interest rates were 8%. Actuarial information of 8% for four periods follows:
Future amount of 1
1.360489
Present value of 1
0.735030
In the entry to record this purchase, there would be a
a.
$20,000 debit to Equipment
b.
$5,299.40 debit to Discount on Notes Payable
c.
$27,209.78 credit to Notes Payable
d.
$14,700.60 credit to Equipment
Future amount of 1
1.360489
Present value of 1
0.735030
Explanation / Answer
B.$5,299.40 debit to discount on notes payable.
the value of machine = $20,000 * present value of 1 for 8% for 4 years.
=>$20,000 * 0.735030
=>$14,700.60.
discount on notes payable = value of note - value of machine
=>$20,000 - 14,700 .60
=>$5,299.40
the journal entry will be:
Equipment a/c...........................Dr $14,700.60 Discount on note payable a/c.....Dr $5,299.40 .............To Cash a/c $20,000