Amortization Schedule for Note where Stated Interest Rate Differs from Historical Market Rate of Interest Hager Company acquires a computer from Volusia Computer Company. The cash price (fair value) of the computer is $37,938. Hager Company gives a three-year, interest-bearing note with a maturity value of $40,000. The note requires annual payments of 6% of face value, or $2,400 per year, payable at the end of each year. The interest rate implicit in the note is 8% per year.

Prepare an amortization schedule for the note similar to Exhibit 11.2. Round amounts to nearest dollar.

Amortization Schedule for a Three-Year Note with a Maturity

Value of $40,000, Calling for 6% Annual

Interest Payments, Yield of 8% per Year

Carrying Value Start of Year

Interest Expense for Period

Payment

Interest Added to Carrying Value

Carrying Value End of Year

Year 1

$

$

$

$

$

Year 2

Year 3

Prepare journal entries for Hager Company 1) to record the purchase of the computer and 2) to record interest for Year 1. Ignore entries for depreciation expense on the computer. Round amounts to nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.

(1)
(2)