Entries for zero-interest- bearing notes
Not what you're looking for?
On 12/31/07 Joe Smith Company acquired a computer from Louis Corporation by issuing a $400,000 zero-bearing note payable in full on 12/31/11. Joe Smith Company's credit rating permits it to borrow funds from its several lines of credit at 10%. The computer is expected to have a 5-year life and a %50,000 salvage value.
A.) Prepare the journal entry for the purchase 12/31/07.
B.) Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective interest method) on 12/31/08.
C.) Prepare any necessary adjusting entries relative to depreciation and amortization on 12/31/09.
Purchase this Solution
Solution Summary
The solution examines journal entries for zero-interest. The necessary adjusting entries relative to depreciation and amortization are discussed.
Solution Preview
A)
First of all, we need to determine the present value of the principal by simply discounting the future value of $400,000 by 10% over 5 periods
Present value of principal = $400,000 / (1 + 10%)^5 = $248,369
Present value of interest = $0 (since this is a zero-interest note)
Total present value = $248,369 + $0 = $248,369. This is the value of the computer that should go into the book
The discount of the transaction = $400,000 note face value - $248,369 total present value = $151,631
The journal entry is thus as follows:
Debit: Computer $248,369
Debit: Discount ...
Purchase this Solution
Free BrainMass Quizzes
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking