Question

On December 31, 2020, Blue Company acquired a computer from Plato Corporation by issuing a $636,000 zero-interest-bearing note, payable in full on December 31, 2024. Blue Company’s credit rating permits it to borrow funds from its several lines of credit at 12%. The computer is expected to have a 5-year life and a $71,000 salvage value

Prepare the journal entry for the purchase on December 31, 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2020

eTextbook and Media

List of Accounts

  

  

Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2021. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2021
	(To record the depreciation.)
December 31, 2021
	(To amortize the discount.)

Schedule of Note Discount Amortization
Date		Debit, Interest Expense Credit, Discount on Notes Payable		Carrying Amount of Note
12/31/20		$		$
12/31/21
12/31/22
12/31/23
12/31/24

eTextbook and Media

List of Accounts

  

  

Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2022. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2022
	(To record the depreciation.)
December 31, 2022
	(To amortize the discount.)

Answer 1

Part A

Date	Account titles and explanation	Debit	Credit
December 31, 2020	Equipment (636000*0.63552)	404191
	Discount on notes payable (balancing figure)	231809
	Notes payable		636000

Part B

Date	Account titles and explanation	Debit	Credit
December 31, 2021	Depreciation expense (404191-71000)/5	66638
	Accumulated depreciation - equipment		66638
	(To record the depreciation.
December 31, 2021	Interest expense	48503
	Discount on notes payable		48503
	(To amortize the discount.)

Schedule of Note Discount Amortization
Date	Debit, Interest Expense Credit, Discount on Notes Payable	Carrying amount
12/31/20		404191
12/31/21	48503	452694
12/31/22	54323	507017
12/31/23	60842	567859
12/31/24	68143	636002

Debit, Interest Expense Credit, Discount on Notes Payable = previous carrying amount * 12%

Carrying amount = previous carrying amount + Debit, Interest Expense Credit, Discount on Notes Payable

Part C

Date	Account titles and explanation	Debit	Credit
December 31, 2022	Depreciation expense (404191-71000)/5	66638
	Accumulated depreciation - equipment		66638
	(To record the depreciation.
December 31, 2022	Interest expense	54323
	Discount on notes payable		54323
	(To amortize the discount.)