Question - On January 1, 2011 Mclean Company makes the 2 following acquisitions.
1. Purchases land having a far market value of 300,000 by issuing a 5 yr zero interest bearing promissory note in the face amount of $505,518.
2. Purchases equipment by issuing a 6% 8 year promissory note having a maturity value of $400,000, (interest payable annually).
The company has to pay 11% interest funds from its bank.
Instructions -
A) Record the two journal entries that should be recorded by mclean company for the two purchases on Jan 1, 2011.
B) Record the interest at the end of the first year on both notes using the effective-interest method.