On January 1, 2020, Pronghorn Company makes the two following acquisitions.
1. Purchases land having a fair value of $160,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $251,763.
2. Purchases equipment by issuing a 7%, 8-year promissory note having a maturity value of $270,000 (interest payable annually).
The company has to pay 12% interest for funds from its bank.
(a) Record the two journal entries that should be recorded by Pronghorn Company for the two purchases on January 1, 2020.
(b) Record the interest at the end of the first year on both notes using the effective-interest method.
(Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
No.
Date
Account Titles and Explanation
Debit
Credit
(a) 1. January 1, 2020
Land
160,000
Discount on Notes Payable
91,763
Notes Payable
251,763
2. January 1, 2020
Equipment
270,000
Discount on Notes Payable
70,000
Notes Payable
200,000
(b) 1. December 31, 2020
Interest Expense
12,000
Discount on Notes Payable
9,763
Cash
2,237
2. December 31, 2020
Interest Expense
18,000
Discount on Notes Payable
12,000
Cash
6,000
