Essay Question # 2 Marathon Key Company would like to purcha…
Essay Question # 2 Marathon Key Company would like to purchase a corporate jet. Marathon pays $100,000 and signs a 4 year, 5%, $3 million installment note with the seller, Kudjoe Key (Kudjoe), to purchase the jet on 4/1/2020. The note requires annual installment payments of $846,035.50 beginning on 4/1/2021. The jet has a market value of $3.1 million at 4/1/2020. Marathon uses accelerated depreciation methods with $1.5 million of depreciation calculated for the first 12 months of operations. Requirements A) Prepare all appropriate journal entries (Marathon ONLY) for the year ended December 31, 2020, Marathon’s financial reporting year-end. Adjusting entries, as needed, are required. B) On 4/2/2021 Marathon experiences dire financial (cash flow) difficulties related to an unexpected unfavorable lawsuit verdict. Marathon, on 4/2/21, agrees to return the jet to the seller. The jet has a fair value of $1.9 million on 4/2/21. The seller agrees to forgive (i.e. cancel the installment note with no additional payments required) the loan. Record the entry for the seller – Kudjoe, ONLY, that would be required at 4/2/21 for the restructuring of the debt. Students should assume the required first payment was made on 4/1/2021.