Question

On September 30, 2017, Coldwater Corporation purchased equipment for $1,030,000. The equipment was purchased with a $80,000 down payment and a three-year, 4%, $950,000 bank loan for the balance. The terms provide for payment of the bank loan with quarterly fixed principal payments of $79,167, 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

Answer 1

Journal Entries:

Date	Account Titles and Explanation	Debit	Credit
Sep. 30, 2017	Equipment	$1,030,000
	Cash		$80,000
	4% Bank Loan Payable		$950,000
	(To record the purchase of equipment by cash and by 4% loan)
Nov. 30, 2017	Interest Expense ($950,000*4/100*2/12 months)	$6,333
	Interest Payable		$6,333
	(To record the interest accrued for 2 months on the bank loan)
Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2017	Interest Payable	$6,333
	Interest Expense ($950,000*4/100*1/12 months)	$3,167
	4% Bank Loan Payable	$79,167
	Cash ($6,333 + $3,167 + $79,167)		$88,667
	(To record the payment of first quarter payment)
Mar. 31, 2018	Interest Expense ($950,000*4/100*3/12 months)	$9,500
	4% Bank Loan Payable	$79,167
	Cash ($9,500 + $79,167)		$88,667
	(To record the payment of second quarter payment)
Date	Account Titles and Explanation	Debit	Credit
Nov. 30, 2017	Interest Expense ($950,000*4/100*2/12 months)	$6,333
	Interest Payable		$6,333
	(To record the interest accrued for 2 months on the bank loan)
Dec. 31, 2017	Interest Payable	$6,333
	Interest Expense ($950,000*4/100*1/12 months)	$3,167
	4% Bank Loan Payable ($79,167 - $6,333 - $3,167)	$69,667
	Cash		$79,167
	(To record the payment of first quarter payment)
Mar. 31, 2018	Interest Expense ($950,000*4/100*3/12 months)	$9,500
	4% Bank Loan Payable ($79,167 - $9,500)	$69,667
	Cash		$79,167
	(To record the payment of second quarter payment)