LCD Industries purchased a supply of electronic components from Entel Corporatio
ID: 2527079 • Letter: L
Question
LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2018. In payment for the $25.7 million purchase, LCD issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. (FV of $1, PV of $1, FVA of $1, PVA of $1. EVAD of $1 and PVAD of $1) (use appropriate factor(s) from the tables provided.) Required: 1. & 2. Prepare the journal entry for LCD's purchase of the components on November 1, 2018 and the first installment payment on November 30, 2018 3. What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2018? Complete this question by entering your answers in the tabs below Req 1 and 2 Req 3 Prepare the journal entry for LCD's purchase of the components on November 1, 2018 and the first installment payment on November 30, 2018. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Date General Journal Debit Credit November 01, 2018 25,700,000 ' Inventory Notes payable 25,700,000 November 30 2018 257,000 2,283,413 2 Interest expense Notes payable Cash 2,540,413Explanation / Answer
Solution 1 & 2:
Total cost of purchase = $25,700,000
Interest rate = 12%, 1% monthly rate
Nos of monthly installment = 12
Equal monthly installment = $25,700,000 / Cumulative PV factor at 1% for 12 periods
= $25,700,000 / 11.25508 = $2,283,414
Solution 3:
Interest for December month = ($25,700,000 - 2,026,414) * 1% = $236,736
Total interest for november and december 2018 = $257,000 + $236,736 = $493,736
Therefore $493,736 will be reported as interest expense in income statement for period ended Dec 31, 2018
Journal Entries - LCD Industries Event Date Particulars Debit Credit 1 1-Nov-18 Inventory Dr $25,700,000.00 To Notes Payable $25,700,000.00 (To record inventory purchase against issue of note) 2 30-Nov-18 Interest Expense Dr $257,000.00 Notes Payable Dr $2,026,414.00 To Cash $2,283,414.00 (Being installment paid with interest)Related Questions
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