Answer:
Explanation:
If On 8/6/10 the company purchased some additional equipment and the equipment was valued at $10,000 for which the company signed a two-year 6% note payable to Evian Sprinter with no payment due until maturity.
Then the amount to be recorded as at today is a discounted value which is the present value of the amount the asset is purchased
PV = FV/(1+R)^2
PV = 10,000/(1.06)^2 = $8,900
Therefore acquisition date entry will be
Dr. Equipment....8,900
Cr. Future Obligation....8,900
At the end of 2010 we record the unwinding of the interest which is for 6 months
That will be calculated as 6% of 8900 * 6 months /12 months = 267
Dr. Interest Expense....267
Cr. Future Obligation........267
Being the unwinding of the interest for year to date on future obligation on equipment purchase.
At the end of 2011 we record the unwinding of the interest which is for the year
That will be calculated as 6% of (8900+267) = 550
Dr. Interest Expense....550
Cr. Future Obligation........550
Being the unwinding of the annual interest on future obligation - equipment purchase.
At the end of 2012 we record the unwinding of the interest which is for the 6 months in 2012
That will be calculated as 6% of (8900+267+550) *6/12 = 291
Dr. Interest Expense....291
Cr. Future Obligation........291
Being the unwinding of the interest for balance 6 months in 2012 on future obligation - equipment purchase.
Hence at the end of the two years the total amount = 8900+267+550+291 which gives approximately $10,000 as the future obligation to be settled
