Dambro purchased a new piece of equipment to be used in its new facility. The $3
ID: 2346073 • Letter: D
Question
Dambro purchased a new piece of equipment to be used in its new facility. The $365,000 piece of equipment was purchased with a $52,000 down payment and with cash received through the issuance of a $313,000, 8%, 4-year mortgage note payable issued on October 1, 2010. The terms provide for quarterly installment payments of $23,052 on December 31, March 31, June 30, and Sept. 30.
a. Prepare an installment payments schedule for the first five payments of the notes payable. Include Cash Payment, Interest Expense, Reduction of Principal, and Principal Balance.
b. Prepare all necessary journal entries related to the notes payable for December 31, 2010.
c. Show balance sheet presentation for these obligations for December 31, 2010: Current liabilities (Current portion of 8% mortgage notes payable)
Long-term liabilities (Mortgage notes payable, 8% due in 2014 and secured by plant assets)
Explanation / Answer
Instalment payment Schedule
b. Interest Expense $6,260
Accrued Interest $6,260
8% Notes Payable $16,792
Accrued Interest $6,260
Cash $23,052
c. Assuming Current portion i.e. $16,792 plus interest $6,260 of Notes payable has been paid off on December 31, 2010 as receorded in b above.
Long-Term Liabilities :
8% Mortgage Notes Payable $296,208
Instalment payment Schedule
Cash Payment Interest Expense Reductionof Principal Principal
Balance 12/31/2010 23,052 6,260 16,792 296,208 03/31/2011 23,052 5,924 17,128 279,080 06/30/2011 23,052 5,582 17,470 261,610 09/30/2011 23,052 5,232 17,820 243,790 09/30/2011 23,052 4,876 18,176 225,614
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