Question

Pharoah Inc. decided to purchase equipment from Central Ontario Industries on January 2, 2020, to expand its production capacity to meet customers' demand for its product. Pharoah issued a $929,000, 5-year, non-interest-bearing note to Central Ontario for the new equipment when the prevailing market interest rate for obligations of this nature was 12%. The company will pay off the note in 5 $185,800 instalments due at the end of each year of the note's life. (The tables in this problem are to be used as a reference for this problem.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Prepare the journal entry at the date of purchase. Calculate the purchase price using any of the three methods (tables, financial calculator, or Excel). (Credit account titles are automatically indented when the 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. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to o decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit Jan. 2, 2020

Answer 1

a)
Date	Account Titles and Explanation	Debit	Credit
Jan. 2 ,2020	Equipment (($185,800 X 3.60478)	$      669,768
	Discount on Notes Payable	$      259,232
	Notes Payable		$      929,000
	PV of $185,800 annuity @ 12% for 5 years
b)	Interest Expense ($669,768.12 x 12%)	$        80,372
	Notes Payable	$      185,800
	Discount on Notes Payable		$        80,372
	Cash		$      185,800
c)	Interest Expense ($564340.30 x 12%)	$        67,721
	Notes Payable	$      185,800
	Discount on Notes Payable		$        67,721
	Cash		$      185,800
d)	Depreciation Expense ($669,768.12÷ 6)	$      111,628
	Accumulated Depreciation		$      111,628
Date	Notes Payable	Interest 12%	Reduction in Principal	Balance
1/2/20				$      669,768
12/31/20	185800	$        80,372	$      105,428	$      564,340
12/31/21	185800	$        67,721	$      118,079	$      446,261