Question

Larkspur Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers’ demand for its product. Larkspur issues a(n) $2,240,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $448,000 installments due at the end of each year over the life of the note.

(d) Assuming that the equipment had a 10-year life and no salvage value, prepare the journal entry necessary to record depreciation in the first year. (Straight-line depreciation is employed.) (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation Format. For detailed answer refer to the supporting sheet.

1 Answer 2 3 Firstly we have to calculate the cost of the machine 5 Cost of machine annual lease payment present value annuity (12%,5) 6448000*(1-(1.12) ^-5)/.12) 7448000*3.604776 8 $1614940 9 10 11 Depreciation Per year under SLM (cost salvage value)/life 12 1614940-0)/10 13 $161494 14 15 16 Journal Entry 17 Account Titles and Explanation Debit Credit 18 Depreciation Expense Accumulated Depreciation - Equipment $ 161,494 161,494 19 20 21.