Tradewell Rentals purchased a piece of equipment with an FMV of $11,348 in exchange for
a five-year, non-interest-bearing note with a face value of $20,000.
a. Compute the effective interest rate on the note payable.
b. Prepare the journal entry to record the purchase.
c. How much interest expense should Tradewell recognize on the note payable during the first year?
d. What is the balance sheet value of the note at the end of the first year?
e. Will the interest expense recognized by Tradewell in the second year be greater than, equal to, or less than the interest expense recognized in the first year? Why?
f. Will the interest expense recognized in the third year be greater than, equal to, or less than the interest expense recognized in the second year?