Question

Exercise 10-15 Bonita Corporation purchased a computer on December 31, 2019, for $157,500, paying $45,000 down and agreeing to pay the balance in five equal installments of $22,500 payable each December 31 beginning in 2020. An assumed interest rate of 9% is implicit in the purchase price. Your answer is partially correct. Try again. Prepare the journal entry at the date of purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit December 31, 2019 Equipment 132517 Discount on Notes Payable T Cash 45000 T Notes Payable 112500 SHOW LIST OF ACCOUNTS your answer is partially correct. Try again. Prepare the journal entry at December 31, 2020, to record the payment and interest (effective interest method employed). (Round answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Debit Credit Date Account Titles and Explanation December 31, 2020 Interest Expense 6561 Notes Payable 22500 T Cash 22500 Discount on Notes Payal T 6561

Answer 1

1)

Fair value of computer = Down payment + Present value of installments

= $45,000 + $22,500 * Cumulative PV factor at 9% for 5 periods

= $45,000 + $22,500 * 3.88975

= $132,519.38

Date	Account Title and Explanation	Debit	Credit
December 31 2019	Equipment	132,519.38
	Discount on Notes Payable	24,980.62
	Notes Payable		112,500
	Cash		45,000
	(Recorded Purchase of Equipment)

2)

Date	Account Title and Explanation	Debit	Credit
December 31 2020	Interest Expenses (87,519.38*9%)	7,876.74
	Notes Payable	22,500
	Discount on Notes Payable		7,876.74
	Cash		22,500
	(Recorded Payment of 1st installment & interest expense

3)

Date	Account Title and Explanation	Debit	Credit
December 31 2021	Interest Expenses	6,560.65
	Notes Payable	22,500
	Discount on Notes Payable		6,560.65
	Cash		22,500
	(Recorded Payment of 2nd installment & interest expenses)

Note:

2) Interest Expense = (112,500-24,980.62)*9% = 7,876.74

Amortization of Discount = 7,876.74

Unamortized discount = 24,980.62 – 7,876.74 = 17,103.88

3) Interest Expenses = (112,500-22,500 – 17,103.88)*9% = 6,560.65