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Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. Credit account titl

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abiolataiwo2015

Based on the information given the appropriate journal entry to record the transactions is:

Garcia Corporation  Journal entry

Debit  Truck $54,641

Debit Discount on notes payable  $25,359

Credit Notes payable $80,000

(To record the purchase of truck)

Truck =Purchase price×1/(1+Interest rate)^Number of years

Truck=$80,000×1/(1+.10)^4

Truck=$80,000×1/(1.10)^$

Truck=$80,000×0.683013

Truck=$54,641

Discount on notes payable = Notes payable - Truck

Discount on notes payable =$80,000 - $54,641  

Discount on notes payable = $25,359

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