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.