Question

Exercise 14-21 (Algo) Installment note [LO14-3] LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2021. In payment for the $25.2 million purchase, LCD issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 18%.(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. & 2. Prepare the journal entries for LCD's purchase of the components on November 1, 2021 and the first installment payment on November 30, 2021. 3. What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2021? Complete this question by entering your answers in the tabs below. Reg 1 and 2 Req3 Prepare the journal entries for LCD's purchase of the components on November 1, 2021 and the first installment payment on November 30, 2021. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Required 1& 2 1 2 Pv @ 1.5% 0.98522 0.97066 $ Date November-1 2021 Credit interest rate 18% pa = 1.5% per month Installment amount = 25200000 /10.90751= Account Component Inventory Notes Payable (Journal entry for purchase of components) 2,310,335 Debit 25,200,000 $ 3 4 5 $ 25,200,000 7 8 November 30 2021 Interest Expense (25200000 x 1.5%) Notes Payable Cash $ $ 378,000 1,932,335 bo 0.95632 0.94218 0.92826 0.91454 0.90103 0.88771 0.87459 0.86167 0.84893 0.83639 10.90751 $ 2,310,335 10

Required 3 Installment amount = 25200000/10.90751= Interest Expense (25200000 x 1.5%) november month payament towards principal $ $ $ 2,310,335 378,000 1,932,335 Note payable Less november month payament towards principal Note payable beginning December 01 Interest for december = 23267665 x 1.5% = $ $ $ $ 25,200,000 (1,932,335) 23,267,665 349,015 total interest reported in Incoe statement = 378000 +349015 = $ 727,015