Exercise 10-14 Wildhorse Inc. has decided to purchase equipment from Central Mic
ID: 2520470 • Letter: E
Question
Exercise 10-14
Wildhorse Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2017, to expand its production capacity to meet customers’ demand for its product. Wildhorse issues a(n) $1,104,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $220,800 installments due at the end of each year over the life of the note.
Prepare the journal entry at the date of purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. 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.)
Prepare the journal entry at the end of the first year to record the payment and interest, assuming that the company employs the effective-interest method. (Round answers to 0 decimal places, e.g. 5,275. 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.)
Prepare the journal entry at the end of the second year to record the payment and interest. (Round answers to 0 decimal places, e.g. 5,275. 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.)
Assuming that the equipment had a 10-year life and no salvage value, prepare the journal entry necessary to record depreciation in the first year. (Straight-line depreciation is employed.) (Round answers to 0 decimal places, e.g. 5,275. 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.)
Exercise 10-14
Wildhorse Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2017, to expand its production capacity to meet customers’ demand for its product. Wildhorse issues a(n) $1,104,000, 5-year, zero-interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $220,800 installments due at the end of each year over the life of the note.
Explanation / Answer
Journal Entry on the date of purchase
Journal Entry to record payament made at the end of the year.
Journal Entry to record depreciation
Working Year Amount Paid Discount factor @12% Present value Undue interset 1 $2,20,800 0.89286 $1,97,143 $23,657 2 $2,20,800 0.79719 $1,76,020 $44,780 3 $2,20,800 0.71178 $1,57,161 $63,639 4 $2,20,800 0.63552 $1,40,323 $80,477 5 $2,20,800 0.56743 $1,25,289 $95,511 $11,04,000 $7,95,936 $3,08,064Related Questions
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