On January 1, 2008, ABC company purchased a truck. The company signed a note agreeing to pay $100,000 on December 31, 2012 (i.e. single large payment). The market interest rate on January 1, 2008 for this note was 11%. The market interest rates at the end of 2008, 2009, 2010, 2011, and 2012 for this note were 9%, 10%, 9%, 11%, and 12%, respectively.
(1) Prepare the journal entry to record the purchase of the truck (round to nearest dollar).
(2) Prepare the journal entry on December 31, 2009 (assume no interest has been accrued during the year).
(3) Prepare the journal entry on December 31, 2012 (assume no interest has been accrued during the year).
(4) Will the interest expense in 2009 be more or less than the interest expense in 2010? Explain your answer.
1) Journal entry to record purchase of truck Truck A/c Dr 100000 To Creditor A/c (Name) 100000 (Being asset purchased on... View the full answer