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How much is the amount for the principal payment

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Question - On December 31, 2019, Diamond Company bought an equipment with carrying amount of $5, 000, 000 and issued a noninterest-bearing note requiring payment of $1, 000, 000 annually for 8 years. The first payment is due December 31, 2020.

The prevailing rate of interest for this type of note at date of issuance is 12%.

PV of 1 at 12% for 8 periods: 0.4039

PV of ordinary annuity of 1 at 12% for 8 periods: 4.9676

Required -

1. How much is the carrying amount of the note on December 31, 2019?

2. On December 31, 2020, how much interest expense should be recognized?

3. How much is the amount for the principal payment in 2021?

4. On the part of the seller, how much is the gain or loss on sale of equipment?

Reference no: EM132655925

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