Question

Problem 10-3A On September 30, 2017, Coldwater Corporation purchased equipment for $1,210,000. The equipment was purchased with a $130,000 down payment and a three-year, 4%, $1,080,000 bank loan for the balance. The terms provide for payment of the bank loan with quarterly fixed principal payments of $90,000, plus interest, starting on December 31. Coldwater has a November 30 year end and records adjusting entries annually. Record the purchase of equipment on September 30, 2017. (Round answers to the nearest whole dollar, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Sept. 30 Record the accrual of interest expense on November 30, 2017. (Round answers to the nearest whole dollar, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Nov. 30

Answer 1

1)

Date	Account title & explanation	Debit ($)	Credit ($)
September 31, 2017	Equipment	1,210,000
	……Cash		130,000
	……Bank loan		1,080,000
	(to record the purchase of equipment)

2)

Date	Account title & explanation	Debit ($)	Credit ($)
November 30, 2017	Interest expense ($1080,000×4%×2/12)	7,200
	……Interest payable		7,200
	(to record the accrued interest expense)

3)

Date	Account title & explanation	Debit ($)	Credit ($)
December 31, 2017	Bank loan	90000
	Interest expense ($1080000×4%×3/12)	10,800
	……Cash		100,800
	(to record the first installment payment)
March 31, 2018	Bank loan	90000
	Interest expense ($1080000×4%×3/12)	10800
	……Cash		100800
	(to record the second installment payment)

4)

Date	Account title & explanation	Debit ($)	Credit ($)
November 30, 2017	Interest expense ($1080,000×4%×2/12)	7200
	……Interest payable		7200
	(to record the accrued interest expense)
December 31, 2017	Bank loan	95957
	……Cash		95957
	(to record first installment payment)
March 31, 2018	Bank loan	95957
	……Cash		95957
	(to record second installment payment)

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