On January 1,2014 BCL Transmission Services Co

question 65

Essay

On January 1,2014 BCL Transmission Services Co.issued a $40,000,non-interest bearing note,due on January 1,2015,in exchange for a custom-built computer system.The fair value of the computer system is not easily determinable.The market rate of interest for similar transactions is 4%.BCL's year-end is December 31.
Requirements:
a.Prepare the journal entry to record the issuance of the note payable.
b.Prepare the journal entry to record the accrual of interest at December 31,2014,assuming that BCL prepares adjusting entries only at year-end.
c.Prepare the journal entry to record the retirement of the note payable on January 1,2015.

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Definitions:

Total Cost

The sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Relevant Costs

Costs directly related to a specific decision, which will change as a result of that decision.

Average Cost

The total cost of production divided by the number of goods produced, representing the cost per unit of output.

Marginal Cost

The financial outlay for creating one further unit of a good or service.