Question

$375,000 zero interest loan

Quarterly payments of $18,000 for 5 years
Market rate of interest is 10%

1. What amount should be recorded for the asset purchase?
2. And what amount should be recorded for the liability used to purchase it?

Answer 1

The amount that should be recorded for the asset purchase is $375,000. This is the amount of the loan that is being used to purchase the asset.

The amount that should be recorded for the liability used to purchase the asset is also $375,000. This is the amount of the loan that is being taken on to purchase the asset.