Journal entries for Company purchased a special-purpose duplicating machine by issuing a five-year zero-interest bearing note.
1.(3/1/2009)Goochland Company makes a loan to Betterment Corporation and receives in exchange a three-year, $50,000 note bearing interest at a 9% annual rate. Interest is paid annually. The market rate of interest for similar notes less similar risk is 11%, and Goochland thus recognizes some discount upon the issuance of the note.
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2.(3/1/2009) Goochland Company purchased a special-purpose duplicating machine from Zyborg Corporation by issuing a five-year zero-interest bearing note for $120,000. The current market rate of interest for similar obligations is 8%, and Goochland will pay off the note in five equal annual installments, beginning on March 1, 2010. The fair market value of the machine cannot be readily determined. A discount account related to the note should be utilized to insure that the machine is recorded on the books at its estimated current value.
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