LCD Industries purchased a supply of electronic components from Entel Corporatio
ID: 2530514 • Letter: L
Question
LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2018. In payment for the $24.4 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 24%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD 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?
Explanation / Answer
1)Nov 1 2018:
Component inventory(db)24400000
Notes payable(cR)24400000
use pmt formaule in excel to find the montly installemt amount
=pmt(rate,nper,pv,fv,type)
=pmt(24%/12,12,24.4*10^6,0,0)
=2307254.16
interest expense=24.4*10^6*(24%/12)=488000
2)Nov 30 2018:
Interest expense(db)488000
notes payable(db)1819254.16
Cash(cr)2307254.16
3)the outstanding amount for december is =(24.4*10^6)-1819254.16=22580745.84
the interest expense ois =(24%/12)*22580745.84=451614.92
Total interest expense=451614.92+488000=939614.92
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