Question

*Problem 14-9 Monty Cosmetics Co. purchased machinery on December 31, 2016, paying $55,000 down and agreeing to pay the balance in four equal installments of $56,800 payable each December 31. An assumed interest of 9% is implicit in the purchase price. Prepare the journal entries that would be recorded for the purchase and for (1) the payments and (2) interest on the following dates. (Round answers to o decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) (a) December 31, 2016. (b) December 31, 2017. (c) December 31, 2018. (d) December 31, 2019. (e) December 31, 2020. No. Account Titles and Explanation Debit Credit (a) (b) (1) (b) (2) (c) (1) (c) (2) (d) (1)

Answer 1

Present value of annual payments = $56800 x PVAF_(9%,4) = $184016

Cost of machine = $184016 + $55000 = $239016

CALCULATION OF INTEREST PAYMENTS

years	opening principal ($)	installment($)	principal($)	interest($)	outstanding principal($)
1	184016	56800	40239	16561	143777
2	143777	56800	43860	12940	99917
3	99917	56800	47807	8993	52110
4	52110	56800	52110	4690	0

JOURNAL ENTRIES

No.	Account titles	Debit($)	Credit($)
(a)	Machinery a/c	239016
	To cash a/c		55000
	To accounts payable a/c		184016
	(being machinery purchased on downpayment and rest on account)
(b)(1)	accounts payable a/c	56800
	To cash a/c		56800
	(being annual installment paid)
(b)(2)	Interest on accounts payable a/c	16561
	To accounts payable a/c		16561
	(being interest on account recorded)
c(1)	accounts payable a/c	56800
	To cash a/c		56800
	(being annual installment paid)
c(2)	Interest on accounts payable a/c	12940
	To accounts payable a/c		12940
	(being interest on account recorded)
(d)(1)	accounts payable a/c	56800
	To cash a/c		56800
	(being annual installment paid)
(d)(2)	Interest on accounts payable a/c	8993
	To accounts payable a/c		8993
	(being interest on account recorded)
(e)(1)	accounts payable a/c	56800
	To cash a/c		56800
	(being annual installment paid)
(e)(2)	Interest on accounts payable a/c	4690
	To accounts payable a/c		4690
	(being interest on account recorded)