Problem 8-7 (with solution) On January 1, 2021, South Company acquired a building for 5,000,000. The entity paid 500,000 down and signed a noninterest bearing note for the balance which is payable in...

Problem 8-7 (with solution)

On January 1, 2021, South Company acquired a building for 5,000,000. The entity paid 500,000 down and signed a noninterest bearing note for the balance which is payable in 3 equal annual installments every December 31 of each year.

The prevailing interest rate for a note of this type is 12%. The present value of an ordinary annuity of 1 for three periods is 2.4018.

Required:

1. Prepare journal entries to record purchase of building on January 1, 2021, first installment payment on December 31, 2021` and interest expense for 2021.