The Glassburn Corporation made the following transactions in 2011 when its market rate of interest was 6 percent. Glassburn has a December 31 fiscal year- end.
Sep. 30 Purchased $ 42,000 of office equipment from Office World by paying $ 5,000 down and signing a two- year monthly installment note with a face interest rate of 6 percent.
Oct. 31 Purchased a piece of equipment for $ 62,000 and signed a two- year noninterest- bearing note (annual compounding).
A. Make the amortization schedules for these notes.
B. Make the entries to record the preceding transactions for 2011.
C. Make the appropriate adjusting entries for the notes.
D. Show how the notes are reported on the December 31, 2011, balance sheet.
E. How much interest was reported on the 2011 income statement?
F. Is the cash paid for interest different than the amount reported on the income statement? Explain.
G. How much cash was paid to reduce the principal of the notes?