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Lathrop Inc. purchased equipment on January 1, 2020, for $30,000 cash plus a note payable. The fair value of the equipment on January 1, 2020, is $108,533. The market rate of interest is 6%. 5M Corp. uses the effective interest method to amortize discounts and premiums. Record the entries over the term of the note payable for the following three separate scenarios for the structuring of the note payable. a. The principal of $80,000 is due on December 31, 2021, and the note specified 5% interest payable each December 31 over a two-year period. b. The face value of the note payable is instead $88,240 and is due on December 31, 2021. The note is structured as a zero-interest-bearing note payable over a two-year period. c. The loan is extended to three years with equal payments of $29,380 due on each December 31 over the term of the note. The note will be fully paid upon maturity. Case One Case Two Case Three Note: Round your answers to the nearest whole dollar. • Note: Include any net rounding difference for Note Payable, Net in the interest expense amount for 2022. • Note: List multiple debits or credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. Jan. 1, 2020 Equipment 0 x Interest Payable 0 x Note Payable 0 x To record note issuance Dec. 31, 2020 Interest Payable 0 x Note Payable 0 x Cash 0 x To record installment payment Dec. 31, 2021 Interest Payable 0 x Note Payable Interest Payable To record installment payment 0x 0 x Dec. 31, 2022 Interest Payable Note Payable 0 x Cash 0 x To record installment payment

Lathrop Inc. purchased equipment on January 1, 2020, for $30,000 cash plus a note payable. The fair value of the equipment on January 1, 2020, is $108,533. The market rate of interest is 6%. 5M Corp. uses the effective interest method to amortize discounts and premiums. Record the entries over the term of the note payable for the following three separate scenarios for the structuring of the note payable. a. The principal of $80,000 is due on December 31, 2021, and the note specified 5% interest payable each December 31 over a two-year period. b. The face value of the note payable is instead $88,240 and is due on December 31, 2021. The note is structured as a zero-interest-bearing note payable over a two-year period. c. The loan is extended to three years with equal payments of $29,380 due on each December 31 over the term of the note. The note will be fully paid upon maturity. Case One Case Two Case Three Note: Round your answers to the nearest whole dollar. • Note: Include any net rounding difference for Note Payable, Net in the interest expense amount for 2022. • Note: List multiple debits or credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. Jan. 1, 2020 Equipment 0 x Interest Payable 0 x Note Payable 0 x To record note issuance Dec. 31, 2020 Interest Payable 0 x Note Payable 0 x Cash 0 x To record installment payment Dec. 31, 2021 Interest Payable 0 x Note Payable Interest Payable To record installment payment 0x 0 x Dec. 31, 2022 Interest Payable Note Payable 0 x Cash 0 x To record installment payment

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Lathrop Inc. purchased equipment on January 1, 2020, for $30,000 cash plus a note payable. The fair value of the equipment on January 1, 2020, is $108,533. The market rate of interest is 6%. 5M Corp. uses the effective interest method to amortize discounts and premiums. Record the entries over the term of the note payable for the following three separate scenarios for the structuring of the note payable. a. The principal of $80,000 is due on December 31, 2021, and the note specified 5% interest payable each December 31 over a two-year period. b. The face value of the note payable is instead $88,240 and is due on December 31, 2021. The note is structured as a zero-interest-bearing note payable over a two-year period. c. The loan is extended to three years with equal payments of $29,380 due on each December 31 over the term of the note. The note will be fully paid upon maturity. Case One Case Two Case Three Note: Round your answers to the nearest whole dollar. • Note: Include any net rounding difference for Note Payable, Net in the interest expense amount for 2022. • Note: List multiple debits or credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. Jan. 1, 2020 Equipment 0 x Interest Payable 0 x Note Payable 0 x To record note issuance Dec. 31, 2020 Interest Payable 0 x Note Payable 0 x Cash 0 x To record installment payment Dec. 31, 2021 Interest Payable 0 x Note Payable Interest Payable To record installment payment 0x 0 x Dec. 31, 2022 Interest Payable Note Payable 0 x Cash 0 x To record installment payment
Transcribed Image Text:Lathrop Inc. purchased equipment on January 1, 2020, for $30,000 cash plus a note payable. The fair value of the equipment on January 1, 2020, is $108,533. The market rate of interest is 6%. 5M Corp. uses the effective interest method to amortize discounts and premiums. Record the entries over the term of the note payable for the following three separate scenarios for the structuring of the note payable. a. The principal of $80,000 is due on December 31, 2021, and the note specified 5% interest payable each December 31 over a two-year period. b. The face value of the note payable is instead $88,240 and is due on December 31, 2021. The note is structured as a zero-interest-bearing note payable over a two-year period. c. The loan is extended to three years with equal payments of $29,380 due on each December 31 over the term of the note. The note will be fully paid upon maturity. Case One Case Two Case Three Note: Round your answers to the nearest whole dollar. • Note: Include any net rounding difference for Note Payable, Net in the interest expense amount for 2022. • Note: List multiple debits or credits (when applicable) in alphabetical order. Date Account Name Dr. Cr. Jan. 1, 2020 Equipment 0 x Interest Payable 0 x Note Payable 0 x To record note issuance Dec. 31, 2020 Interest Payable 0 x Note Payable 0 x Cash 0 x To record installment payment Dec. 31, 2021 Interest Payable 0 x Note Payable Interest Payable To record installment payment 0x 0 x Dec. 31, 2022 Interest Payable Note Payable 0 x Cash 0 x To record installment payment
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