Question

Problem 10-3A On September 30, 2017, Coldwater Corporation purchased equipment for $940,000. The equipment was purchased with a $100,000 down payment and a three-year, 5%, $840,000 bank loan for the balance. The terms provide for payment of the bank loan with quarterly fixed principal payments of $70,000, 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 Equipment 940,000 Cash 100,000 Bank Loan Payable 840,000 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 Interest Expense 5,600 Interest Payable 5,600

Answer 1

A)

Date	Account title	debit	credit
30 Nov 2017	Interest expense	7000
	Interest payable		7000
	[Being interest accrued for 2 months (30Sep -30Nov) :840000*5%*2/12]
31 Dec 2017	Interest expense	3500
	Interest payable	7000
	Bank loan payable	70000
	cash		80500
	[Being interest expense accrued for the period 1 Dec -31Dec ,840000*.05*1/12 =3500 ]
31 March 2018	Interest expense	9625
	Bank loan payable	70000
	cash		79625

#31 March 2018

Bank loan outstanding after payment of first installment on 31 Dec = 840000 -70000= 770000

Interest expense accrued for 3 months = 770000*.05 *3/12 = 9625

B)

Date	Account title	debit	credit
30 Nov 2017	Interest expense	7000
	Interest payable		7000
	[Being interest accrued for 2 months (30Sep -30Nov) :840000*5%*2/12]
31 Dec 2017	Interest expense	3500
	Interest payable	7000
	Bank loan payable	65317
	cash		75817
	[Being interest expense accrued for the period 1 Dec -31Dec ,840000*.05*1/12 =3500 ] [Principal repayment =75817 total amount paid -3500-7000 interest = 65317]
31 March 2018	Interest expense	9684
	Bank loan payable	66133
	cash		75817

#31 March 2018

Bank loan outstanding after payment of first installment on 31 Dec = 840000 -65317 = 774683

Interest expense accrued for 3 months = 774683*.05 *3/12 = 9684

Principal repayment= 75817- 9684= 66133