Question

Hemingway Company purchases equipment by issuing a 7-year, $350,000 non-interest-bearing note, when the market rate for this type of note is 7%. Hemingway will pay off the note with equal payments to be made at the end of each year. Required: Prepare the journal entry to record Hemingway's acquisition of the equipment Prepare the journal entry to record Hemingway's acquisition of the equipment on January 1.

Answer 1

The journal entry to record Hemingway Company's acquisition of the equipment on January 1 is Equipment (asset) $350,000 and Notes payable (liability) $350,000.

Step-by-step explanation:

To record Hemingway Company's acquisition of the equipment on January 1, the journal entry would be:

• Equipment (asset) $350,000
• Notes payable (liability) $350,000

This entry records the acquisition of the equipment and the corresponding liability of the non-interest-bearing note. The equipment is recorded as an asset, and the notes payable is recorded as a liability. The amount of the note equals the cost of the equipment.