Problem

Notes Payable. Rubio Company had the following borrowing activity. Rubio has a borrowing rate of 5 percent on its other debt.

A. On June 30, 2016, Rubio issued a non-interest bearing, 10 year note of $50,000 to acquire land for expansion.

1. Calculate the cash equivalent price of the land (assuming 5% is the market rate).

2. Prepare the journal entry to record the acquisition on June 30.

B. On January 1, 2016, Rubio acquired equipment by issuing an $80,000, 1 percent, 5 year note, with interest paid annually, starting December 31, 2016.

1. Calculate the cash equivalent price of the equipment (assuming 5% is the market rate).

2. Prepare the journal entry to record the acquisition on January 1.

3. Prepare the journal entry to record the interest payment on December 31, 2016, assuming the effective interest method.