Question

This assignment builds on yesterday's assignment. Recall that on the day of purchase the journal entry was Equipment 300,000 Notes Payable 270,000 Cash 30,000 Note that both the liability and asset will decline over time. As in yesterday's assignment, assume straight line depreciation, with an estimated salvage value of $50,000. At the end of eight years, the equipment is sold for $40,000. On the date of purchase, 1/1/year1, the company had Assets (possibly among other assets) Equipment $300,000 Liabilities (possibly among other liabilities): Note Payable $270,000 Prepare a spreadsheet shawing what these asset and liability balances will be forr years 1 through 8, end of year You will need to add a line to show accumulated depreciation, as well as "Equipment, net accumulated depreciation" For year 8, show all accounts and balances, even if they are zero. IRisoner Company plans to purchase a machine with the toilowing conditions Purchase price-$300,000 The down payment 10% of purchase price with remainder fnanced at an annual interest rate of 16% The inancing period is 8 years with equal annual payments made every year The present value of an annuity of $1 per year for 8 years at 16% is 4.3436 The present value of $1 due al the end of 8 years at 16% is 3050 The annual payment rounded to the nearest dellar) is A $39.150 B $43,200 C. $62.160 D s82.350 The comect answeris A The amount of $39.150 is based on dividing ($270,000 16) by 8 (years) B. The amount of $43.200 is 16% of $270.000 C The periodic payment is found by dividing the amount to be acoumulated (S300.000 price- $30000 down payment-$270,000) by the interest factor for the present value of an ondinary annuity for 8 years at 16% Consequenty the payment is $62.160 ($27000043436 D The amount of $82.350 refects multiplicaion by the present value of a sum due (305) instead of dividing by the present value of an annuity 4.3436

Answer 1

Hi,

Kindly note that the above question is an illustration. Hence for year 8 end, there is no balance for Equipment or Notes Payable. However, as required, they are shown with zero value. There is a loss of $10,000 on sale of equipment, which could have been shown as retained earnings with $(10,000) in the liability side for the illustration purpose.

Solution (a) Calculation Original Salvage of depreciation : cost = $ 300000 value = $ 50000 = 8 yoors Lile Depreciation per annum = (300000 - 50000) 18 ___3 $ 31,250 (6) Calculation of Notes payable per annum: - No res poyable = $2,70,000 B Duration = a 8 years Payment of notes per annum = 270000/8 = $33,750 Note: In the absence of complete information, - we are deducting $3,750 p.a. Year I end: Assets Equipment less: Accumulated Equipment net of Amount ($) 3,00,000 (31,250) 2,68.750 Depreciation Acc. Dep. 2,36,250 liabilities - Notes Payable Year 2 end : Assets Equipment less: Acc. Dep Equipment, net of 300,000 (62,500) 2,37,500 Acc. Dep. Liabilities cs Scarthed with Cantrean ---------- Payable 2,20,500

Amount (5) Year 3 endi Assets Equipment less: Acc. Dep. Equipment, net of 300000 (93,750) 2,06,250 Acc. Dep liabilities - Notes Payable 1,68,750 Year 4 end : Assets Equipment less: Acc. Dep. Equipment, net of Acc. Dep 300,000 (1 25,000) 175,000 liabilities - Noles payable 1,35.000 Year 5 end: Assets Equipment Loss: Acc. Dep. Equipment, net of 3,00,000 (156,250 1,43,750 Acc. Dep. Iliabilities - Notes payable 1,01,250 Slanned with amScanner

Yoor 6 end : Amount (6) - Assets Equipment less: Acc. Dep. Equipment, net of 300,000 5,87,500) 1,12,500 Acc. Dep Liabilities Notes Payable 67,500 year 7 endi - Assets Equipment less: Acc. Dep. Equipment, net of Ace Dep 300 000 (218750) 81,250 1 licbilities - Notes Payable 33,750 Year 8 end Assets Equipment less Acc. Dep Equipment, net Nil of Acc Dep. NHL liabilities Notes Payable Retained Earning Nil to 000 es Scanned with... CamScanner