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Prepare the necessary journal entries

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Question - At the beginning of 2021, VHF Industries acquired a machine with a fair value of $8,450,250 by issuing a two-year, noninterest-bearing note in the face amount of $10 million. The note is payable in two annual installments of $5 million at the end of each year.

Required -

1. What is the effective rate of interest implicit in the agreement?

2. Prepare the necessary journal entries. When recording the issuance of the installment note record it at its net book value in a single note payable (or receivable) account (no Discount).

3. Suppose the market value of the machine was unknown at the time of purchase, but the market rate of interest for notes of similar risk was 11%. Prepare the journal entry to record the purchase of the machine.

Reference no: EM133173486

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