Step-1: Calculate the present value of the Notes payable
PV of notes payable = Installment paid x PV annuity factor at 12% for 5 years
= $80,000 x 3.60478
= $288,382
Step-2: Prepare Schedule Note Discount Amortization
Date |
Cash Paid |
Interest Expense |
Discount Amortized |
Carrying amount of Note |
01/02/2020 | $288,382 | |||
12/31/2020 | $80,000 | $34,606 | $45,394 | $242,988 |
12/31/2021 | $80,000 | $29,159 | $50,841 | $192,147 |
12/31/2022 | $80,000 | $23,058 | $56,942 | $135,204 |
12/31/2023 | $80,000 | $16,224 | $63,776 | $71,429 |
12/31/2024 | $80,000 | $8,571 | $71,429 | $0 |
Step-3: Calculation of Depreciation expense on Equipment
Depreciation expense = (Cost - Salvage value) ÷ Useful life
= ($288,382 - 0)/10 Years
=$28,838
Journal Entries:
Date | Account title and explanation | Debit | Credit |
01/02/2020 | Equipment | $288,382 | |
Discount on Notes Payable | $111,618 | ||
Notes payable | $400,000 | ||
[To record purchase of equipment in exchange of note] | |||
12/31/2020 | Notes payable | $90,788 | |
Interest expense | $34,606 | ||
Discount on notes payable | $45,394 | ||
Cash | $80,000 | ||
[To record the payment and interest at the end of the first year] | |||
12/31/2021 | Notes payable | $101,683 | |
Interest expense | $29,159 | ||
Discount on notes payable | $50,841 | ||
Cash | $80,000 | ||
[To record the payment and interest at the end of the first year] | |||
12/31/2020 | Depreciation expense | $28,838 | |
Accumulated depreciation-equipment | $28,838 | ||
[To record first year's depreciation expense on equipment] |
Kingbird Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its prod...
Larkspur Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers’ demand for its product. Larkspur issues a(n) $2,240,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $448,000 installments due at the end of each year over the life of the note. (a)...
Tamarisk Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers' demand for its product. Tamarisk issues an) $1,440,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $288,000 installments due at the end of each year over the life of the note. (a)...
Larkspur Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers’ demand for its product. Larkspur issues a(n) $2,240,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $448,000 installments due at the end of each year over the life of the note. (a)...
Larkspur Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers’ demand for its product. Larkspur issues a(n) $2,240,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $448,000 installments due at the end of each year over the life of the note. (a)...
Exercise 10-14 Bramble Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers’ demand for its product. Bramble issues a(n) $720,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $144,000 installments due at the end of each year over the life of the...
Exercise 10-14 Swifty Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers’ demand for its product. Swifty issues a(n) $2,240,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $448,000 installments due at the end of each year over the life of the...
Larkspur Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers’ demand for its product. Larkspur issues a(n) $2,240,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $448,000 installments due at the end of each year over the life of the note. (a)...
Larkspur Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers’ demand for its product. Larkspur issues a(n) $2,240,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $448,000 installments due at the end of each year over the life of the note. (d)...
Tamarisk Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers’ demand for its product. Tamarisk issues a(n) $1,440,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $288,000 installments due at the end of each year over the life of the note. (Round...
please show all work. Exercise 10-14 (Part Level Submission) Flounder Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2017, to expand its production capacity to meet customers' demand for its product. Flounder issues a(n) $928,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 11%. The company will pay off the note in five $185,600 installments due at the end of...