Lathrop Inc. purchased equipment on January 1, 2020, for $150,000 cash plus a note payable. The fair value of the equipment on January 1, 2020, is $542,666. The market rate of interest is 6%. 5M Corp. uses the effective interest method to amortize discounts and premiums. Record the entries over the term of the note payable for the following three separate scenarios for the structuring of the note payable.

a. The principal of $400,000 is due on December 31, 2021, and the note specified 5% interest payable each December 31 over a two-year period.

b. The face value of the note payable is instead $441,200 and is due on December 31, 2021. The note is structured as a zero-interest-bearing note payable over a two-year period.

c. The loan is extended to three years with equal payments of $146,900 due on each December 31 over the term of the note. The note will be fully paid upon maturity.

• Case One
• Case Two
• Case Three

• Note: Round your answers to the nearest whole dollar.
• Note: List multiple debits and credits (when applicable) in alphabetical order.

Date	Account Name	Dr.	Cr.
Jan. 1, 2020	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	To record note issuance
Dec. 31, 2020	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	To record interest expense
Dec. 31, 2021	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	To record interest expense
Dec. 31, 2021	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	CashInventoryEquipmentLandDeferred RevenueBonds PayableDiscount on Bonds PayableDiscount and Debt Issuance CostsPremium on Bonds PayableFair Value Adjustment—Bonds PayableNote PayableDiscount on Note PayablePremium on Note PayableFair Value Adjustment—Note PayableInterest PayableCommon StockPaid-in Capital in Excess of Par—Common StockPaid-in Capital—Stock WarrantsRetained Earnings—Prior Period AdjustmentDebt Conversion ExpenseInterest ExpenseLoss on Redemption of BondsGain on Redemption of BondsUnrealized Gain or Loss—IncomeUnrealized Gain or Loss—OCI
	To record extinguishment of the note

Answer rating: 100% (QA)

Fixed assets such as equipment building are recorded at fair market value or cost whichever is less Fair market value is the value of the asset that is recovered by trading the asset on the market Lat... View the full answer