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Prepare the journal entry at the end of the first year

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Question - 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.

Required -

(a) Prepare the journal entry at the date of purchase.

(b) 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.

Reference no: EM132625987

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