Discounting of Notes Payable
Response to the following problem:
On October 30, 2010, the Sanchez Company acquired a piece of machinery and signed a 12-month note for $24,000. The face value of the note includes the price of the machinery and interest. The note is to be paid in four $6,000 quarterly installments. The value of the machinery is the present value of the four quarterly payments discounted at an annual interest rate of 16%.
Required
1. Prepare all the journal entries required to record the preceding information including the year-end adjusting entry and the installment payments. Present value techniques should be used.
2. Show how the preceding items would be reported on the December 31, 2010 balance sheet.