Purchase of Asset by Non-Interest-Bearing Note

question 16

Essay

Purchase of asset by non-interest-bearing note
Lebanon Corporation is a Calgary-based manufacturer of automobile parts. In early January 2020, the company acquired land and a building to be used as the company's new head office. Lebanon issued a $ 2M, five-year non-interest-bearing note to the seller. Payment is to be made in five equal instalments of $ 400,000 at the end of each year. As a result of a depressed real estate market, the fair value of the building cannot be readily determined. However, it has been ascertained that, given Lebanon's credit rating and market conditions, an interest rate of 9% would properly reflect the substance and credit risk of the negotiated payment schedule.
Other information:
1.One-third of the total value of the acquisition is attributable to the land.
2.The building is expected to have a useful life of 25 years.
3.Throughout the year, Lebanon incurred maintenance costs of $ 87,000 and paid them in cash.
4.A parking lot was built at a cost of $ 100,000 cash. The work was completed on July 1 and is expected to have a useful life of 10 years.
Instructions
Prepare all journal entries that are required to record the above events and transactions. Round all values to the nearest dollar.

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Definitions:

Insider Trading

Trading in the stock of a publicly listed corporation based on inside information. One who possesses inside information and has a duty not to disclose it to outsiders may not profit from the purchase or sale of securities based on that information until the information is available to the public.

Publicly Listed

A company whose shares are traded openly on a stock exchange.

Financial Status

Financial Status refers to the current state of an individual's or entity's monetary resources and liabilities.

Racketeer Influenced and Corrupt Organizations Act (RICO)

A U.S. federal law designed to combat organized crime by enabling the prosecution of criminal organizations for their collective criminal activities.