On January 1, 2010, Northern Manufacturing Company bought a piece of equipment by signing a non-interest-bearing $80,000,

Question:

On January 1, 2010, Northern Manufacturing Company bought a piece of equipment by signing a non-interest-bearing $80,000, one-year note. The face value of the note includes the price of the equipment and the interest. The effective interest rate is an annual rate of 16%, and the note is to be paid in four $20,000 quarterly installments. The price of the equipment is the present value of the four payments discounted at the effective interest rate.

Required

1. Prepare all journal entries to record the preceding information. Present value techniques should be used.

2. If Northern's financial statements were issued on June 30, 2010, what amount would the company report as notes payable?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...