1. On December 30, 2017, Sheffield Corp.. purchased a machine from Pharoah Company in exchange for a zero-interest-bearing note requiring eight payments of $218,000. The first payment was made on December 30, 2017, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 10%.
On Sheffield's December 31, 2017 balance sheet, the net note payable to Pharoah is
A. $1,279,315
B. $1,288,137
C. $1,070,368
D. $1,163,014
2. On July 1, 2017, Ed Wynne signed an agreement to operate as a franchisee of Bramble Corp., for a franchise fee. Of this amount, $324,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $162,000 beginning July 1, 2018. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Wynne's credit rating indicates that he can borrow money at 13% for a loan of this type.
Wynne should record the acquisition cost of the franchise on July 1, 2017 at
A. $1,056,240
B. $972,000
C. $667,440
D. $805,864
3. Waterway Industries assigns $4,570,000 of its accounts receivables as collateral for a $3.14 million loan with a bank. The bank assesses a 3% finance charge on the loan amount and charges interest on the note at 6%. What would be the journal entry to record this transaction?
A. Debit Cash for $1,876,900, debit Interest Expense for $125,600, debit Due from Bank for $1,430,000, and credit Accounts Receivable for $4,570,000.
B. Debit Cash for $2,826,000, debit Interest Expense for $314,000, and credit Notes Payable for $3,140,000.
C. Debit Cash for $3,002,900, debit Interest Expense for $137,100, and credit Accounts Receivable for $3,140,000.
D. Debit Cash for $3,002,900, debit Interest Expense for $137,100, and credit Notes Payable for $3,140,000.