On January 1, 2008 Touring company agreed to buy some equipment from Jones Company. Touring company signed a note,agreeing to pay Jones company $500,000 for the equipment on December 31, 2010. The market rate of interest for this note was 10%.

a. Prepare the journal entry Touring company would record on January 1, 2008 for the purchase.

b. Prepare the December 31, 2008 adjusting entry to record interest expense related to the note for the first year. Assume no adjusting entries have been made during the year.

C. prepare the December 31, 2009 adjusting entry to record interest expense related to the note for the second year, assume that no adjusting entries have been made during the year.

d. Prepare the entry Touring company would record on December 31, 2010, the due date of the note to record interest expense for the third year, and payment of the note. Assume that no adjusting entries have been made for the year.

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Originally Posted by tammyhammers

On January 1, 2008 Touring company agreed to buy some equipment from Jones Company. Touring company signed a note,agreeing to pay Jones company $500,000 for the equipment on December 31, 2010. The market rate of interest for this note was 10%.

a. Prepare the journal entry Touring company would record on January 1, 2008 for the purchase.

b. Prepare the December 31, 2008 adjusting entry to record interest expense related to the note for the first year. Assume no adjusting entries have been made during the year.

C. prepare the December 31, 2009 adjusting entry to record interest expense related to the note for the second year, assume that no adjusting entries have been made during the year.

d. Prepare the entry Touring company would record on December 31, 2010, the due date of the note to record interest expense for the third year, and payment of the note. Assume that no adjusting entries have been made for the year.

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What are your answers?

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Originally Posted by paraclete

what are your answers?

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For a. equipment 500,000
Cash 500,000

b. Interest expense 16,667
Interest payable 1667

c. interest expense 33,333
Interest payable 33,333

d. note payable 500,000
Interest payable 50,000
Interest expense 50,000
Cash 600,000

But I don't know if I did them right

Last time I looked 10% of 500,000 was 50,000 and you made an unbalanced journal entry

Same comment on the calculation in the second year

By my calculation three years interest is 150,000

For number a. your credit should be to Notes Payable

For the others your amounts are incorrect. See the previous post.