3) The note payable originated on January 1, 20x6 when the theater was refurbish

Question

3) The note payable originated on January 1, 20x6 when the theater was refurbished Straight-line depreciation, based on a 20 year estimated life, is being used, there is no expected salvage value. Terms of the note: An initial payment of $25,000 was made on January 1, 20x6. Four equal payments of $10,000 are due on December 31st of each year. The first is used by the theater. When the note was issued, the effective interest rate for the Company was 8%. The "Theater Furnishings" account was debited on January 1, 206. Prepare appropriate entries at December 31, 20x7 for: as made on December 31, 20x6. The effective interest method of amortization oreemden Music Theater was 6%; the effective interest rate for the Theater Refurbishing ) the annual note payment (in preparing for the preparation of the year-end financial statements, it was determined that the payment due on December 31, 20x7 had not yet been made.) 2) the interest expense 3) the depreciation expense-theater furnishings ust determine the balance in the "Theatrer Furnishings" account. Preparation of an amortization schedule for this note will be helpful. Round all amounts to the nearest dollar (10 points)

Explanation / Answer

cost=down payment + payment in 4 installments

=25000+(4*10000)

=$ 65,000

calculation of fair value of asset:

year amount pv factor@6% discounted value

0 25,000 1 25,000

1 10,000 0.9434 9,434

2 10,000 0.8899 8,899

3 10,000 0.8396 8,396

4 10,000 0.7921 7,921

fair value of machine 59,650

amortisation

year cost at the beginning interest@8% installment principal repayment cost at end

0 59,650 - 25,000 25,000 34,650

1 34,650 2,772 10,000 7,228 27,442

2 27,442 2194 10,000 7,806 19,636

3 19,636 1,571 10,000 8,429 11,207

4 11,207 1207 10,000 11,207 -

1)annul note payment as on 31 december 2017:

$ 27,442

2)interest expense:

$ 2,194

3)depreciation:

cost of machine: 59,650

life of machine =20 years

depreciation =59650/20

=$ 2,983

entries

1) amount payable 27,422

asset 27,442

2)interest $2,194

bank $ 2,194

3)depreciation $2,983

asset $2,983

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