On January 2 20x8, the Todd Company acquired a truck with a list price of $400,0
ID: 2343324 • Letter: O
Question
On January 2 20x8, the Todd Company acquired a truck with a list price of $400,000 The Todd Company's incremental borrowing rate is 8% (imputed rate). Assume that the truck manufacturer is offering Todd the following terms (each situation is independent). For each of the terms, prepare the journal entries for the life of the note. Assume a December 31 year end. Todd company is a publicly accountable company. Todd Company has to make equal annual payments of principal and interest over five years. Payments are due on December 31 of every year. The interest rate charged is 10%. Todd Company pays the $400,000 in three years. No interest is charged on the note Todd Company pays the $400,000 in three years. Interest of 3% is charged on the note payable on December 31 of every year. Todd Company pays $80,000 on the principal at the end of every year, over 5 years. No interest is charged. a) b) c) d) e) Todd Company has to make equal annual payments of principal and interest over five years. The interest rate charged is 4%Explanation / Answer
a)
b)
c)
d)
e)
Sample journal entries for passing in all the five above scenarios are as follows:
1-1-08
Cash
400,000
Loan Payable
400,000
To record the borrowing of $400,000 at x% per annum; principal and interest due on 12-31 each year
12-31-XX
Interest Expense
XX
Interest Payable
XX
To record accrued interest for xx months ($400,000 X xx%)
12-31-XX
Interest Expense
XX
Interest Payable
XX
Loan Payable
XX
Cash
XX
To record repayment of loan and interest (note that $XX of the total interest was previously accrued)
No. of Pmts Date of Payment Starting Balance Scheduled Payment Extra Payment Total Payment Principal Amount Interest Amount Balance to Pay Cumulative Interest Amount 1 1/1/2009 400,000 100,183 - 100,183 68,183 32,000 331,817 32,000 2 1/1/2010 331,817 100,183 - 100,183 73,637 26,545 258,180 58,545 3 1/1/2011 258,180 100,183 - 100,183 79,528 20,654 178,652 79,200 4 1/1/2012 178,652 100,183 - 100,183 85,890 14,292 92,762 93,492 5 1/1/2013 92,762 100,183 - 92,762 85,341 7,421 - 100,913