Recording a Note Payable Issued for Non-Cash Consideration Lathrop Inc. purchased equipment on January 1, 2020, for $97,500 cash plus a note payable. The fair value of the equipment on January 1, 2020, is $352,733. 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 $260,000 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 $286,780 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 $95,485 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
Recording a Note Payable Issued for Non-Cash Consideration
Lathrop Inc. purchased equipment on January 1, 2020, for $97,500 cash plus a note payable. The fair value of the equipment on January 1, 2020, is $352,733. 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 $260,000 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 $286,780 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 $95,485 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: List multiple debits and credits (when applicable) in alphabetical order.
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| Jan. 1, 2020 | Answer | Answer | Answer |
| Answer | Answer | Answer | |
|
Answer
|
Answer | Answer | |
|
Answer
|
Answer | Answer | |
| To record note issuance | |||
| Dec. 31, 2020 | Answer | Answer | Answer |
|
Answer
|
Answer | Answer | |
|
Answer
|
Answer | Answer | |
| To record interest expense | |||
| Dec. 31, 2021 | Answer | Answer | Answer |
|
Answer
|
Answer | Answer | |
|
Answer
|
Answer | Answer | |
| To record interest expense | |||
| Dec. 31, 2021 | Answer | Answer | Answer |
|
Answer
|
Answer | Answer | |
| To record extinguishment of the note |
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