(Solved Homework): Can you please explain calculations as you go? Thank you!…

Can you please explain calculations as you go? Thank you!

Exercise 14-16

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

1. Purchases land having a fair value of $360,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $566,467.
2. Purchases equipment by issuing a 7%, 9-year promissory note having a maturity value of $520,000 (interest payable annually on January 1).

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

(a) Record the two journal entries that should be recorded by Nash 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 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.)

Account Titles and Explanation
(a) 1.
January 1, 2017
January 1, 2017
(b) 1.
December 31, 2017
December 31, 2017

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Expert Answer


a) January 1, 2017
Land $ 3,60,000
Discount on notes payable $ 2,06,467
Notes payable $ 5,66,467
(To record purchase of land by issuing note payable)
PV of 566467 discounted at 12% = 566467/1.12^4 = $ 3,60,000
Equipment $ 3,81,466
Discount on notes payable $ 1,38,534
Notes payable $ 5,20,000
(To record purchase of equipment by issuing note payable)
PV of the face value of the note = 520000*0.36061 = $ 1,87,517
PV of the interest = 520000*7%*5.32825 = $ 1,93,948
Total PV $ 3,81,466
b) January 31, 2017.
Interest expense ($360000*12%) $      43,200
Discount on notes payable $      43,200
Interest expense (381466*12%) $      45,776
Discount on notes payable $      16,624
Cash (520000*12%) $      62,400

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