Memminger Corporation purchased equipment on January 1, 2012. The terms of the purchase required that the company pay $1,000 in interest at the end of each year for five years and $20,000 at the end of the fifth year. The FMV of the equipment on January 1, 2012, was $17,604.
REQUIRED:
a. Prepare the journal entry that would be recorded on January 1, 2012.
b. Compute the effective interest rate on the note payable.
c. Prepare the journal entry that would be recorded when the first interest payment is made on December 31, 2012.
d. Compute the net book value of the note payable as of December 31, 2012.