On January 1, 2019, Billips Corporation purchased equipment having a fair value of $72,054.94 by issuing a $90,000 note, payable in three $30,000 annual installments beginning December 31, 2019. Required:

Prepare:
a. the journal entry to record the purchase of the equipment.
b. a schedule to compute the annual interest expense.
c. the journal entries to record yearly interest expense and note repayments over the life of the note.

a. the journal entry to record the purchase of the equipment.

January 1, 2019, equipment is purchased

Dr Equipment 72,054.94

Dr Discount on notes payable 17,945.06

    Cr Notes payable 90,000

b. a schedule to compute the annual interest expense.

Since we are not given any type of interest rate to compute the amortization of the discount of notes payable using the effective interest method, I will use straight line amortization. Amortization of interest expense per year = $17,945.06 / 3 = $5,981.68

c. the journal entries to record yearly interest expense and note repayments over the life of the note.

December 31, 2019, accrued interest expense

Dr Interest expense 5,981.68

    Cr Discount on notes payable 5,981.68

December 31, 2020, accrued interest expense

Dr Interest expense 5,981.68

    Cr Discount on notes payable 5,981.68

December 31, 2021, notes payable is paid off

Dr Notes payable 90,000

Dr Interest expense 5,981.70

    Cr Cash 90,000

    Cr Discount on notes payable 5,981.68

i would have to say its c