Description of this paper

On 1/1/2009, XYZ signed a 2 year, $6,000 non-interest note and received equipment form ABC

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solution


Question

On 1/1/2009, XYZ signed a 2 year, $6,000 non-interest note and received equipment form ABC Manufacturing. The equipment is estimated to be worth $5,144. Based on XYZ?s credit history, a reasonable market rate of interest on similar loans is estimated to be 9%. Since XYZ has recently obtained similar loans from a local bank, XYZ believes that the market interest rate is considered to be a more reliable estimate. Assume that the equipment will be depreciated over 2 years with no salvage value using the straight-line method.;ABC Manufacturing primary business is equipment sales. Therefore, ABC believes that the equipment?s fair value is a more reliable estimate. The cost to manufacture the equipment was $4,400 and ABC carries this equipment as inventory on its books.;Prepare all required entries for 2009 and 2010. You should create entries for both ABC and XYZ. Assume that both amortize discounts using the effective interest rate method.

 

Paper#77901 | Written in 18-Jul-2015

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