Question

Problem 14-9 Bonita Cosmetics Co. purchased machinery on December 31, 2016, paying $52,200 down and agreeing to pay the balance in four equal installments of $57,600 payable each December 31, An assumed interest of 10% is implicit in the purchase price Prepare the journal entries that would be recorded for the purchase and for (1) the payments and (2) interest on the following dates. (Round answers to O decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) (a) December 31, 2016. (b) December 31, 2017 (c) December 31, 2018 (d) December 31, 2019 (e) December 31, 2020 No. Account Titles and Explanation Debit Credit

Answer 1

No.	Date	Account titles and Explanation				Debit	Credit
(a)	December 31, 2016	Machinery				$ 2,34,784
		Cash					$       52,200
		Loan payable					$   1,82,584
		(To record purchase of machine)
(b)	December 31, 2017	Loan Payable				$      39,342
		Interest Expense				$      18,258
		Cash					$       57,600
		(To record interest payment and loan repayment)
(c)	December 31, 2018	Loan Payable				$      43,276
		Interest Expense				$      14,324
		Cash					$       57,600
		(To record interest payment and loan repayment)
(d)	December 31, 2019	Loan Payable				$      47,603
		Interest Expense				$        9,997
		Cash					$       57,600
		(To record interest payment and loan repayment)
(e)	December 31, 2020	Loan Payable				$      52,364
		Interest Expense				$        5,236
		Cash					$       57,600
		(To record interest payment and loan repayment)
Wotking:
	Present Value of annuity of 1		=	(1-(1+i)^-n)/i			Where,
			=	(1-(1+0.10)^-4)/0.10			i	10%
			=	3.169865446			n	4
	Present value of annual installment			=	Annual Installment*Present value of annuity of 1
				=	$             57,600	*	3.16986545
				=	$         1,82,584
	Loan amortization table:
	Period number	Beginning Loan (a)		Interest Expense (b)=(a)*10%		Annual Installment ©		reduction in principal (d)=©-(b)			Ending Loan Balance (e)=(a)-(d)
	1	$       1,82,584		$       18,258.42		$      57,600			$ 39,341.58			$ 1,43,242.67
	2	$ 1,43,242.67		$       14,324.27		$      57,600			$ 43,275.73			$     99,966.94
	3	$     99,966.94		$         9,996.69		$      57,600			$ 47,603.31			$     52,363.64
	4	$     52,363.64		$         5,236.36		$      57,600			$ 52,363.64			$               0.00