Pharoah Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers' demand for its product. Pharoah issues a(n) $1,520,000, 5-year, zero-interest- bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $304,000 installments due at the end of each year over the life of the note. Prepare the journal entry at the date of purchase.

Pharoah Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers' demand for its product. Pharoah issues a(n) $1,520,000, 5-year, zero-interest- bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $304,000 installments due at the end of each year over the life of the note. Prepare the journal entry at the date of purchase.

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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Question

Pharoah Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its
production capacity to meet customers' demand for its product. Pharoah issues a(n) $1,520,000, 5-year, zero-interest-
bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of
this nature is 12%. The company will pay off the note in five $304,000 installments due at the end of each year over the
life of the note.
Prepare the journal entry at the date of purchase.

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