Problem 14-9
Martinez Cosmetics Co. purchased machinery on December 31, 2016,
paying $53,500 down and agreeing to pay the balance in four equal
installments of $44,000 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 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.)
(a) | December 31, 2016. | |
(b) | December 31, 2017. | |
(c) | December 31, 2018. | |
(d) | December 31, 2019. | |
(e) | December 31, 2020. |
Solution :
Purchase price of equipment = Down payment + Present value of installments
= $53,500 + $44,000 * Cumulative PV factor at 9% for 4 periods
= $53,500 + $44,000 * 3.23972 = $196,048
Journal Entries - Martinez Cosmetics Co. | |||
Date | Particulars | Debit | Credit |
31-Dec-15 | Equipment Dr | $196,048.00 | |
To Cash | $53,500.00 | ||
To Notes Payable | $142,548.00 | ||
(To record purchase of equipment) | |||
31-Dec-16 | Interest Expense Dr ($142,548*9%) | $12,829.00 | |
Notes payable Dr | $31,171.00 | ||
To Cash | $44,000.00 | ||
(To record installation payment) | |||
31-Dec-17 | Interest Expense Dr [($142,548 - $31,171)*9%] | $10,024.00 | |
Notes payable Dr | $33,976.00 | ||
To Cash | $44,000.00 | ||
(To record installation payment) | |||
31-Dec-18 | Interest Expense Dr [($142,548 - $31,171 - $33,976)*9%] | $6,966.00 | |
Notes payable Dr | $37,034.00 | ||
To Cash | $44,000.00 | ||
(To record installation payment) | |||
31-Dec-19 | Interest Expense Dr [($142,548 - $31,171 - $33,976 - $37,034)*9%] | $3,633.00 | |
Notes payable Dr | $40,367.00 | ||
To Cash | $44,000.00 | ||
(To record installation payment) |
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