Reference no: EM132864108

Question - On January 2nd, 2020, Zimmerman Landscaping Inc., decided to purchase some earth-moving equipment (a grader to be precise), from Rabat Graders Ltd., to expand its services to existing customers and to hopefully grow its customer base. Zimmerman issued an $800,000, five-year, non-interest-bearing note to Rabat Graders Ltd., when the prevailing market rate of interest for obligations of this magnitude and risk was 12%. Zimmerman will pay off the note in five equal installments of $160,000 each due at the end of each year of the note's life.

Required -

1. Calculate the cash equivalent price of this acquisition (its Present Value).

2. Prepare the journal entry at the date of purchase of this asset.

3. Assuming the equipment has a 20-year life and a residual value of $15,000, prepare the journal entry to record depreciation expense at the end of the first year. (Assume Zimmerman uses the straight-line method of depreciation).