Question

Exercise 10-15 Martinez Corporation purchased a computer on December 31, 2019, for $130,200, paying $37,200 down and agreeing to pay the balance in five equal installments of $18,600 payable each December 31 beginning in 2020. An assumed interest rate of 8% is implicit in the purchase price. 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.) Debit Credit Date Account Titles and Explanation December 31, 2019

Answer 1

Solution:

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

= $37,200 + $18,600 * Cumulative PV factor at 8% for 5 periods

= $37,200 + $18,600 * 3.99271

= $111,464.41

Journal Entries - Martinez Corporation
Date	Particulars	Debit	Credit
31-Dec-19	Equipment Dr	$111,464.41
	Discount on notes payable Dr	$18,735.59
	To Cash		$37,200.00
	To Notes Payable		$93,000.00
	(To record purchase of equipment by issue of note)
31-Dec-20	Notes Payable Dr	$18,600.00
	Interest expense Dr ($74,264.41*8%)	$5,941.15
	To Cash		$18,600.00
	To Discount on notes payable		$5,941.15
	(To record installation payment)
31-Dec-21	Notes Payable Dr	$18,600.00
	Interest expense Dr ($61,605.56*8%)	$4,928.44
	To Cash		$18,600.00
	To Discount on notes payable		$4,928.44
	(To record installation payment)