Solution-Make the journal entry at the end of the first year

Make the journal entry at the end of the first year

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Reference no: EM132626592

Pina Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers' demand for its product. Pina issues a(n) $1,680,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $336,000 installments due at the end of each year over the life of the note.

Question 1: Prepare the journal entry at the end of the first year to record the payment and interest, assuming that the company employs the effective-interest method. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit

Interest Expense 145,345

Notes Payable 336,000

Discount on Notes Payable 145,345

Cash 336,000

Reference no: EM132626592

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Make the journal entry at the end of the first year

Reference no: EM132626592

Reference no: EM132626592

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