Problem:
On January 1, 2013, McLean Company makes the two following acquisitions. 1. Purchases land having a fair value of $326,000 by issuing a 4-year, zero-interest-bearing promissory note in the face amount of $512,967. 2. Purchases equipment by issuing a 6%, 9-year promissory note having a maturity value of $412,000. (interest payable annually). The company has to pay 12% interest for funds from its bank.
Required:
Question 1: Record the two journal entries that should be recorded by McLean Company for the two purchases on January 1, 2013.
Question 2: Record the interest at the end of the first year on both notes using the effective-interest method.
Note: Be sure to show how you arrived at your answer.