Make entries to record the purchase of the land

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Donald Duck Limited purchased a piece of land on September 1, 2019 by paying $100,000 cash and issuing a two year 6% note payable for $300,000. Interest is due once a year on August 31. The accountant Scrooge McDuck is very happy with the purchase because he was able to arrange such a favorable interest rate. The normal market interest rate is 12%. The accountant records the purchased land in the books at $400,000 and records interest expense on August 31, 2020 at $24,000. Donald Duck Limited has recently hired you, and you review this transaction for their August 31, 2020 year end.

Required

Problem 1. Comment on the accounting choices made by the accountant.

Problem 2. Prepare entries to record the purchase of the land and the first interest payment in accordance with IFRS using the net method to record the note.

Reference no: EM132816483

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