1 On January 1, 2020, an entity issues a 3-year noninterest bearing note paya

amounting to P2,000,000 in exchange for equipment. The principal on the

on December 31, 2022. The effective interest rate on January 1, 2020 is 16%
Please take note that PV of 1 @ 16%, n=3 is 0.64066

Required: Provide all the entries during the term of the note payable.

Cash flows 2,000,000

Multiply PV of 1 @ 16%, n=3 0.64066
1,281,320

Jan. 1, 2020 Equipment 1,281,320

Discount on notes payable 718,680
Notes payable

Interest
Date Expense Discount
1/1/20 718,680
12/31/20 205,011 513,669
12/31/21 237,813 275,856
12/31/22 275,863 (7)

Dec 31, 2020 Interest expense 205,011

Discount on notes payable

Dec 31, 2021 Interest expense 237,813

Discount on notes payable

Dec 31, 2022 Interest expense 275,863

Discount on notes payable

Notes Payable 2,000,000

Cash
t bearing note payable
he principal on the note is due
nuary 1, 2020 is 16%.

2,000,000

Present
Value
1,281,320
1,486,331
1,724,144
2,000,007

205,011

237,813

275,863

2,000,000