Reference no: EM132464861

(Purchase of Equipment with Non-Interest-Bearing Debt) Native Inc. decided to purchase equipment from Central Ontario Industries on January 2, 2020,to expand its production capacity to meet customers' demand for its product.

• Native issued a $900,000, five-year, non-interest-bearing note to Central Ontario for the new equipment when the prevailing market interest rate for obligations of this nature was 10%.
• The company will pay off the note in five $180,000 instalments due at the end of each year of the note's life.

Instructions

(Round to nearest dollar in all calculations.)

Question a. Prepare the journal entry(ies) at the date of purchase. Calculate the purchase price using any of the three methods (tables, financial calculator, or Excel).

Question b. Prepare the journal entry(ies) at the end of the first year to record the payment of principal and interest, assuming that the company uses the effective interest method.

Question c. Prepare the journal entry(ies) at the end of the second year to record the payment of principal and interest.

Question d. Assuming that the equipment has an eight-year life and no residual value, prepare the journal entry that is needed to record depreciation in the first year. (The straight-line method is used.)