ABCompany contracted with XYZ Corporation to construct custom-made equipment. The equipment was completed and ready for use on January 1, 2021. ABCompany paid for the machine by issuing a $200,000, three-year note that bears interest at the rate of 4% , payable annually on December 31 each year. Since the machine was custom-built, the cash price was unknown. However, when compared to similar contracts, 10% was deemed to be a reasonable rate of interest. Required: 1) Prepare the journal entry by ABCompany to record the purchase of equipment. 2) Prepare journal entries to record interest for each of the first two years.
ABCompany contracted with XYZ Corporation to construct custom-made equipment. The equipment was completed and ready for use on January 1, 2021. ABCompany paid for the machine by issuing a $200,000, three-year note that bears interest at the rate of 4% , payable annually on December 31 each year. Since the machine was custom-built, the cash price was unknown. However, when compared to similar contracts, 10% was deemed to be a reasonable rate of interest. Required: 1) Prepare the journal entry by ABCompany to record the purchase of equipment. 2) Prepare journal entries to record interest for each of the first two years.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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ABCompany contracted with XYZ Corporation to construct custom-made equipment. The equipment was completed and ready for use on January 1, 2021. ABCompany paid for the machine by issuing a $200,000, three-year note that bears interest at the rate of 4% , payable annually on December 31 each year. Since the machine was custom-built, the cash price was unknown. However, when compared to similar contracts, 10% was deemed to be a reasonable rate of interest.
Required:
1) Prepare the
2) Prepare journal entries to record interest for each of the first two years.
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