Snipes Construction paid for earth moving equipment by issuing a $319,000 3year note that specified 1.4% interest to be paid on December 31 of each year. The equipment’s retail cash price was unknown, but it was determined that a reasonable interest rate was 4.5%.

Snipes Construction paid for earth moving equipment by issuing a $319,000 3year note that specified

1.4% interest to be paid on December 31 of each year. The equipment’s retail cash price was unknown,

but it was determined that a reasonable interest rate was 4.5%.

Use (Table 2) and (Table 4)

(a) At what amount should Snipes record the equipment and the note? (Round "PV Factor" to 5 decimal

places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Price of the note $ 291,817 ± 0.1%

(b) What journal entry should it record for the transaction? (Round "PV Factor" to 5 decimal places and

final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Date General Journal Debit Credit

Dec. 31 Equipment 291,817 ± 0 . 1%

Discount on notes payable 27,183 ± 0. 1 %

Notes payable 319,000 ± 0.1%

 Explanation:

(a)

Interest $4,466¥× 2.74896* = $ 12,277

Principal $319,000× .87630** = 279,540

Present value (price) of the bonds $ 291,817

¥ 1.4% × $319,000

* present value of an ordinary annuity of $1: n = 3, i = 4.5%. (Table 4)

** present value of $1: n = 3, i = 4.5%. (Table 2)