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Assignment 2 – Notes Receivable & Inventory

Your assignment submission must be typed up in either Word and Excel and uploaded

(one file only) to the assignment dropbox before midnight Sunday January 24, 2016.

Problem 1

On January 2, 20x1, the Harry Company acquired a truck with a list price of $500,000.

The Harry Company's incremental borrowing rate is 8% (imputed rate). Assume that the

truck manufacturer is offering Harry the following terms (each situation is independent).

For each of the terms, prepare the journal entries for the life of the note. Assume a

December 31 year end.

Harry company is a publicly accountable company.

a) Harry Company has to make equal annual payments of principal and interest over

five years. Payments are due on December 31 of every year. The interest rate

charged is 10%.

b) Harry Company pays the $500,000 in three years. No interest is charged on the

note.

c) Harry Company pays the $500,000 in three years. Interest of 3% is charged on the

note payable on December 31 of every year.

d) Harry Company pays $100,000 on the principal at the end of every year, over 5

years. No interest is charged.

e) Harry Company has to make equal annual payments of principal and interest over

five years. The interest rate charged is 4%.

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