On December 31, 2017, Faital Limited acquired a machine from Plato Corporation by issuing a $600,000, non-interest-bearing

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On December 31, 2017, Faital Limited acquired a machine from Plato Corporation by issuing a $600,000, non-interest-bearing note that is payable in full on December 31, 2021. The company's credit rating permits it to borrow funds from its several lines of credit at 10%. The machine is expected to have a five-year life and a $70,000 residual value.
Instructions
(a) Using time value of money tables, a financial calculator, and computer spreadsheet functions, calculate the value of the note and prepare the journal entry for the purchase on December 31, 2017.
(b) Prepare any necessary adjusting entries related to depreciation of the asset (use straight-line) and amortization of the note (use the effective interest method) on December 31, 2018.
(c) Prepare any necessary adjusting entries related to depreciation of the asset and amortization of the note on December 31, 2019.
(d) Assume that on December 31, 2017, before buying the machine, Faital had total debt of $432,000 and total assets of $896,000. From the perspective of a creditor, discuss the effect of the purchase on Faital's debt-paying ability?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Intermediate Accounting

ISBN: 978-1119048541

11th Canadian edition Volume 2

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy

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