abonis Cosmetics Co. purchased machinery on December 31, 2013, paying $57,100 do

Question

abonis Cosmetics Co. purchased machinery on December 31, 2013, paying $57,100 down and agreeing to pay the balance in four equal installments of $41,040 payable each December 31. An assumed interest of 9% 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 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.)

A. December 31, 2013.

B. December 31, 2014

C. December 31, 2015.

D. December 31, 2016.

E. December 31, 2017.

Find the debit or credit for each acc title and explanation.

NO. Acc titles and explanation debit credit a Machinary Discount on notes payable cash notes payable B(1) notes payable cash B(2) Interest expense discount on notes payable c(1) Notes payable cash c(2) Interest expense discount on notes payable d(1) Notes payable cash d(2) interest expense discount on notes payable e(1) notes payable cash e(2) interest expense discount on notes payable

Explanation / Answer

Solution :

Annula payment = Loan x interest rate/(1-(1+r)^-n)

41040= A* .09 / (1-(1+.09)^-4

LOAN=132958

MACHINERY VALUE = LOAN + DOWN PAYMENT = 132958 +57100=190058

Loan schedule calculation

year

opening balance

annual payment

interest@9%

principal

Closing balance

1

                  132,958

41040

             11,966

    29,074

                103,884

2

                  103,884

41040

               9,350

    31,690

                   72,194

3

                     72,194

41040

               6,497

    34,543

                   37,651

4

                     37,651

41040

               3,389

    37,651

                             0

Journal entry :

NO.

Acc titles and explanation

debit

credit

a

Machinary

         190,058

Discount on notes payable

           31,202

cash

           57,100

notes payable

         164,160

B(1)

notes payable

           41,040

cash

           41,040

B(2)

Interest expense

           11,966

discount on notes payable

           11,966

c(1

notes payable

           41,040

cash

           41,040

c(2)

Interest expense

             9,350

discount on notes payable

             9,350

d(1)

Notes payable

           41,040

cash

           41,040

d(2)

interest expense

             6,497

discount on notes payable

             6,497

e(1)

notes payable

           41,040

cash

           41,040

e(2)

interest expense

             3,389

discount on notes payable

             3,389

year

opening balance

annual payment

interest@9%

principal

Closing balance

1

                  132,958

41040

             11,966

    29,074

                103,884

2

                  103,884

41040

               9,350

    31,690

                   72,194

3

                     72,194

41040

               6,497

    34,543

                   37,651

4

                     37,651

41040

               3,389

    37,651

                             0

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