Hamlet Corporation purchases computer equipment at a price of $100,000 on January 1, 2007, paying $40,000 down and agreeing to pay the balance in three $20,000 annual installments beginning December 31, 2007. It is not possible to value either the equipment or the $60,000 note directly; however, Hamlet’s incremental borrowing rate is 12%.

Required

1. Prepare a schedule to compute the interest expense and discount amortization on the note.

2. Prepare all the journal entries for Hamlet to record the issuance of the note, each annual interest expense, and the three annual installment payments.