Record interest using the effective-interest method

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On January 1, 2011, McLean Company makes the two following acquisitions.

1. Purchases land having a fair market value of $300,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $505,518.
2. Purchases equipment by issuing a 6%, 8-year promissory note having a maturity value of $400,000 (interest payable annually). The company has to pay 11% interest for funds from its bank.
(a) Record the two journal entries that should be recorded by McLean Company for the two purchases on January 1, 2011.
(b) Record the interest at the end of the first year on both notes using the effective-interest method.

Reference no: EM13160389

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