Question

DueNorth Mining Inc. purchased some crushing equipment on July 1, 2020 for $308,000. A down payment of $28,000 was required and the remainder was financed with a 7% instalment loan payable over 5 years with payments made on a quarterly basis. The quarterly payments required are $16,714 and include both interest and principal. The following is an extract from the loan amortization table the supplier provided to DueNorth : Payment Dates Beginning loan balance Payment Interest Principal Ending loan balance 9/30/20 $280,000 $16,714 $4,900 $11,814 $268,186 12/31/20 268,186 16,714 4,693 12,021 256,165 3/31/21 256,165 16,714 4,483 12,231 243,934 6/30/21 243,934 16,714 4,269 12,445 231,489 9/30/21 231,489 16,714 4,051 12,663 218,826 12/31/21 218,826 16,714 3,829 12,885 205,941

(a) Your answer is correct. Prepare the journal entries for the purchase of the equipment and the first 2 quarterly payments in 2020 (use Long-Term Loan Payable account). (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 0 for the amounts.) Date Account Titles and Explanation Debit Credit July 1, 2020Sept. 30, 2020Dec. 31, 2020 Sept. 30, 2020 Dec. 31, 2020 SHOW LIST OF ACCOUNTS LINK TO TEXT Attempts: 2 of 2 used (b) Your answer is correct. What amount will be reported for this loan payable on the company’s statement of financial position at December 31, 2020? Of this amount, how much will be shown as a current liability and how much will be shown as long-term? Loan Payable $ Current Liability $ Long-term Liability $ SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT Attempts: 1 of 2 used (c1) What amount will be reported as interest expense on the company’s income statement for the year ended December 31, 2020? Interest Expense $ pls answer interest expense

Answer 1

Solution Cost of crushing equipment Less: Down payment Long term borrowings $308,000 ($28,000) $280,000 Rate of Interest Quarterly payment 7% $16,714 Required (a): Journal entry for purchase of equipment and the first 2 quarterly payments in 2020 Credit Date July 01, 2020 Debit $308,000 Account Titles and Explanation Equipment Cash Long-Term Loan Payable account $28,000 $280,000 (To record the purchase of the crushing equipment) Credit Date Sept. 30, 2020 Account Titles and Explanation Interest expense Long-Term Loan Payable account Cash (To record the first quarterly payment) Debit $4,900 $11,814 $40 $16,714 Date Credit Dec. 31, 2020 Account Titles and Explanation Interest expense Long-Term Loan Payable account Cash (To record the second quarterly payment) Debit $4,693 $12,021 $16,714 Required (b): Loan payable balance at December 31, 2020 Loan Payable Current liability ($12,231 + $12,445 +$12,663 +$12,885) Long-term liability ($256,165 - $50,224) $256,165 $50,224 $205,941 Required (c1): Interest expense to be reported in Year 2020 Interest expense ($4,900 + $4,693) $9,593