Requirement (a):
Date | Account title and Explanation | Debit | Credit |
Dec 31,2020 | Equipment | $317,532 | |
Notes payable* | $317,532 | ||
[To record purchase of equipment in exchange of note] |
*Notes payable = Face value of the notes x Present value factor (8%, 3 Years) = $380,000 x 0.79383 = $317,532
Requirement (b):
Date | Account title and Explanation | Debit | Credit |
Dec 31,2021 | Interest expense [317,532 x 8%] | $25,403 | |
Notes payable | $25,403 | ||
[To record interest expense] | |||
Dec 31,2021 | Depreciation expense* | $46,255 | |
Accumulated depreciation-equipment | $46,255 | ||
[To record depreciation expense] |
Requirement (c):
Date | Account title and Explanation | Debit | Credit |
Dec 31,2022 | Interest expense [(317,532+25,403) x 8%] | $27,435 | |
Notes payable | $27,435 | ||
[To record interest expense] | |||
Dec 31,2022 | Depreciation expense* | $46,255 | |
Accumulated depreciation-equipment | $46,255 | ||
[To record depreciation expense] |
*Depreciation expense = (Cost - Salvage value) ÷ Useful life = (317,532-40,000)/6 = $46,255
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