a) On January 1, 2020, Sage Inc. purchased land that had an assessed value of $349,000 at the time of purchase. A $571,000, zero-interest-bearing note due January 1, 2023, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2020, and the interest expense to be reported in 2020 related to this transaction. (Round answers to 0 decimal places, e.g. 38,548.) Land to be recorded at January 1, 2020 $ Interest expense to be reported $
a) On January 1, 2020, Sage Inc. purchased land that had an assessed value of $349,000 at the time of purchase. A $571,000, zero-interest-bearing note due January 1, 2023, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%. Determine at what amount the land should be recorded at January 1, 2020, and the interest expense to be reported in 2020 related to this transaction. (Round answers to 0 decimal places, e.g. 38,548.) Land to be recorded at January 1, 2020 $ Interest expense to be reported $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Exercise 14-17
Presented below are two independent situations:
(a) On January 1, 2020, Sage Inc. purchased land that had an assessed value of $349,000 at the time of purchase. A $571,000, zero-interest-bearing note due January 1, 2023, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%.
Determine at what amount the land should be recorded at January 1, 2020, and the interest expense to be reported in 2020 related to this transaction. (Round answers to 0 decimal places, e.g. 38,548.)
(b) On January 1, 2020, Pronghorn Furniture borrowed $4,500,000 (face value) from Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Pronghorn Furniture agreed to sell furniture to this customer at lower than market price. A 8% rate of interest is normally charged on this type of loan.
Prepare thejournal entry to record this transaction.
(a) On January 1, 2020, Sage Inc. purchased land that had an assessed value of $349,000 at the time of purchase. A $571,000, zero-interest-bearing note due January 1, 2023, was given in exchange. There was no established exchange price for the land, nor a ready fair value for the note. The interest rate charged on a note of this type is 12%.
Determine at what amount the land should be recorded at January 1, 2020, and the interest expense to be reported in 2020 related to this transaction. (Round answers to 0 decimal places, e.g. 38,548.)
| Land to be recorded at January 1, 2020 | $
|
|
| Interest expense to be reported | $
|
(b) On January 1, 2020, Pronghorn Furniture borrowed $4,500,000 (face value) from Sinise Co., a major customer, through a zero-interest-bearing note due in 4 years. Because the note was zero-interest-bearing, Pronghorn Furniture agreed to sell furniture to this customer at lower than market price. A 8% rate of interest is normally charged on this type of loan.
Prepare the
C. Determine the amount of interest expense to report for 2020.
| Interest expense to be reported for 2020 |
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