Problem 2 - Notes Payable & Installment Notes Consider each of the following independent situations:

Part 1

On January 1, 2016, Monroe Company purchased equipment from Edelstein Company by issuing a five-year, 2% note with a face value of $300,000. Interest is paid annually each December 31. The market value of the equipment purchased is not readily determinable. It was determined that, for similar transactions 8% was a reasonable rate of interest. Required:

1. Prepare the journal entry for Monroe Company on January 1, 2016, to record the purchase of the equipment.

2. Prepare an amortization table for the five-year term of the note.

3. Prepare the journal entries for the first three years to record the interest expense and payment towards the note.

Part 2

On January1, 2016, Carmona Corporation purchased some equipment from Phoenix Company for $6,000,000. As payment for the equipment, Carmona issued an 8%, five-year, installment note to be paid in equal annual payments at the end of each year.

Required:

1. Determine the annual payments that Carmona must make on the note.

2. Prepare the journal entry for Carmonas purchase of the equipment.

3. Prepare the journal entry for the first two years of payment on the note.