Tradewell Rentals purchased a piece of equipment with an FMV of $11,348 in exchange for a five-year,

Question:

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.

(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 be greater than, equal to, or less than the interest expenses recognized in the first year? Why?

(f) Will the interest expenses recognized in the third year be greater than, equal to, or less than the interest expenses recognized in the second year?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of 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...