On December 31, 2017, Sheridan Company acquired a computer from Plato Corporatio
ID: 2335498 • Letter: O
Question
On December 31, 2017, Sheridan Company acquired a computer from Plato Corporation by issuing a $595,000 zero-interest-bearing note, payable in full on December 31, 2021. Sheridan Company’s credit rating permits it to borrow funds from its several lines of credit at 12%. The computer is expected to have a 5-year life and a $75,000 salvage value.
Prepare the journal entry for the purchase on December 31, 2017. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. 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.)
Date
Account Titles and Explanation
Debit
Credit
December 31, 2017
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Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2018. (Round answers to 0 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.)
Date
Account Titles and Explanation
Debit
Credit
December 31, 2018
(To record the depreciation.)
December 31, 2018
(To amortize the discount.)
Schedule of Note Discount Amortization
Date
Debit, Interest Expense Credit,
Discount on Notes Payable
Carrying Amount
of Note
12/31/17 $
$
12/31/18
12/31/19
12/31/20
12/31/21
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Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2019. (Round answers to 0 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.)
Date
Account Titles and Explanation
Debit
Credit
December 31, 2019
(To record the depreciation.)
December 31, 2019
(To amortize the discount.)
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Explanation / Answer
present worth of zero interest bearing note = Face value *PVF12%,4
= 595000* .63552
= $ 378134.40 [ROUNDED TO 378134]
Discount on note = 595000-378134 = 216866
Depreciation =[cost-salvage ]/useful life
=[378134-75000]/5
= 60626.8 [rounded to 60627]
**carrying value at dec 31 2018 = 378134+45376 discount amortised in 2018 = 423510
Date Account Debit credit Dec 31 2017 Computer 378134 Discount on note payable 216866 Note payable 595000 December 31 2018 Depreciation expense 60627 Accumulated depreciation-computer 60627 [depreciation receorded] 31 dec 2018 Interest expense 45376 Discount on note payable [378134*.12] 45376 [being discount amortised ,carrying value of note 378134 *rate 12%] 31 dec 2019 depreciation expense 60627 Accumulated depreciation-computer 60627 31 dec 2019 Interest expense 50821 Discount on note payable [423510*12%] 50821Related Questions
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