On January 1, 2008 Touring company agreed to buy some equipment from Jones Company. Touring company signed a note,agreeing to pay Jones company $500,000 for the equipment on December 31, 2010. The market rate of interest for this note was 10%.

a. Prepare the journal entry Touring company would record on January 1, 2008 for the purchase.

b. Prepare the December 31, 2008 adjusting entry to record interest expense related to the note for the first year. Assume no adjusting entries have been made during the year.

C. prepare the December 31, 2009 adjusting entry to record interest expense related to the note for the second year, assume that no adjusting entries have been made during the year.

d. Prepare the entry Touring company would record on December 31, 2010, the due date of the note to record interest expense for the third year, and payment of the note. Assume that no adjusting entries have been made for the year.

a. To prepare the journal entry Touring company would record on January 1, 2008 for the purchase, we need to record the acquisition of the equipment and the corresponding liability for the note payable.

The entry would be as follows:

Equipment (debit) $500,000
Note Payable (credit) $500,000

b. To prepare the December 31, 2008 adjusting entry to record interest expense related to the note for the first year, we need to calculate the interest expense for the year and recognize it in the books.

The interest expense can be calculated using the formula: Interest Expense = Principal x Interest Rate x Time

In this case, the principal is $500,000, the interest rate is 10%, and the time is 1 year. Therefore:

Interest Expense = $500,000 x 0.10 x 1 = $50,000

The adjusting entry would be as follows:

Interest Expense (debit) $50,000
Interest Payable (credit) $50,000

C. To prepare the December 31, 2009 adjusting entry to record interest expense related to the note for the second year, we follow the same process as in part b, but with the time as 2 years:

Interest Expense = $500,000 x 0.10 x 2 = $100,000

The adjusting entry would be as follows:

Interest Expense (debit) $100,000
Interest Payable (credit) $100,000

d. To prepare the entry Touring company would record on December 31, 2010, the due date of the note to record interest expense for the third year and payment of the note, we again calculate the interest expense using the same formula, but with the time as 3 years:

Interest Expense = $500,000 x 0.10 x 3 = $150,000

The entry would be as follows:

Interest Expense (debit) $150,000
Interest Payable (credit) $100,000
Note Payable (credit) $500,000
Cash (credit) $250,000

Note: The interest payable is reduced by $50,000 (the amount recognized in the adjusting entry in part b) before recording the interest expense for the third year. The cash account is debited for the payment of the note including both the principal and the remaining interest expense.