On January 1 2017 Cheyenne Company makes the two following a

On January 1, 2017, Cheyenne Company makes the two following acquisitions.

The company has to pay 11% interest for funds from its bank.

1.		Purchases land having a fair value of $310,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $470,602.
2.		Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $340,000 (interest payable annually on January 1).

Solution

Record the interest at the end of the first year on both notes using the effective-interest method. DR CR a Land 3,10,000 Discount on Notes Payable. 1,60,602 Notes Payable. 4,70,602 b Equipment               2,45,870 Discount on Notes Payable.        94,130 Notes Payable. 3,40,000 Amount Pv factor 9% PV Interest Payment 20,400 5.5370475 112955.8 Maturity value 3,40,000 0.3909248 132914.4 Discount on Notes Payable. 245870.2 DR CR Interest Expense 34100 Discount on Notes Payable. . 34100 Interest Expense 245870*.11 27046 Discount on Notes Payable 6,646 Cash 20,400