Answer:
PART A.
1. January 1, 2020
Account Titles and Explanation Debit Credit
Land 200,000
Discount on Notes Payable 137,012
Notes Payable 337,012
2. January 1, 2020
Account Titles and Explanation Debit Credit
Equipment 185,673
Discount on Notes Payable 64,327
Notes Payable 250,000
Solution:
A. 2. Computation of the discount on notes payable:
Maturity value $250,000
Present value of $250,000 due in 8 years at 11% = $250,000 x 0.43393 = $108,483
Present value of $15,000 payable annually for 8 years at 11% annually = $15,000 x 5.14612
= 77,192
Present value of the note (185,675)
Discount $64,325.
PART B
1. December 31, 2020
Account Titles and Explanation Debit Credit
Interest Expense 22,000
Discount on Notes Payable 22,000
2. December 31, 2020
Account Titles and Explanation Debit Credit
Interest Expense 20,424.08
Discount on Notes Payable 5,424.08
Interest Payable 15,000
Solution:
(b) 1. Discount on Notes Payable = ($200,000 x 11%) = $22,000
(b) 2. Interest Expense = ($185,675 x 11%) = $20,424
Interest Payable = ($250,000 x 6%) = $15,000
