On January 1, 2025, Sarasota Company makes the two following acquisitions. 1. Purchases land having a fair market value of $890,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $1,369375. 2. Purchases equipment by issuing a 5%, 9-year promissory note having a maturity value of $350,000 (Interest payable annually on January 1). The company has to pay 9% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Sarasota Company for the two purchases on January 1, 2025. (b) Record the interest at the end of the first year on both notes using the effective-interest method.
On January 1, 2025, Sarasota Company makes the two following acquisitions. 1. Purchases land having a fair market value of $890,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $1,369375. 2. Purchases equipment by issuing a 5%, 9-year promissory note having a maturity value of $350,000 (Interest payable annually on January 1). The company has to pay 9% interest for funds from its bank. (a) Record the two journal entries that should be recorded by Sarasota Company for the two purchases on January 1, 2025. (b) Record the interest at the end of the first year on both notes using the effective-interest method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On January 1, 2025, Sarasota Company makes the two following acquisitions.
| 1. | Purchases land having a fair market value of $890,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $1,369375. | |
| 2. | Purchases equipment by issuing a 5%, 9-year promissory note having a maturity value of $350,000 (Interest payable annually on January 1). |
The company has to pay 9% interest for funds from its bank.
| (a) | Record the two |
|
| (b) | Record the interest at the end of the first year on both notes using the effective-interest method. |
Expert Solution
Step 1
Notes Payables:
Note payables are the financial instrument that a company is allowed to issue to raise funds for the operations of the company. Note payables are disclosed at face value in the non-current liabilities section of the balance sheet.
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