Problem
On January 1, Snipes Construction paid for earth-moving equipment by issuing a $300,000, 3-year note that specified 2% interest to be paid on December 31 of each year.
• The equipment's retail cash price was unknown, but it was determined that a reasonable interest rate was 5%.
• The equipment has a 5-year useful life with no residual value.
a) At what amount should Snipes record the note?
b) At what amount should Snipes record the equipment?
c) What journal entry should it record for the transaction?
d) What is the depreciation expense for the first year (hint: look at the expanded solution for quiz question 15, wrong answer a)?
e) What is the interest expense for the first year? f) What is the book value of liability at the end of the first year?