Cardinals Corporation purchased a computer on December 31, 2013, for $366,450, p
ID: 2470080 • Letter: C
Question
Cardinals Corporation purchased a computer on December 31, 2013, for $366,450, paying $104,700 down and agreeing to pay the balance in five equal installments of $52,350 payable each December 31 beginning in 2014. An assumed interest rate of 8% is implicit in the purchase price.
1.Prepare the journal entry at the date of purchase.
2.Prepare the journal entry at December 31, 2014, to record the payment and interest (effective interest method employed).
3.Prepare the journal entry at December 31, 2015, to record the payment and interest (effective interest method employed).
Explanation / Answer
1.
Prepare the journal entry at the date of purchase:
Date
Account title & explanation
Debit
Credit
Computer account
$ 366,450
Cash
$ 104,700
Installments (5*$52,350)
$ 261,750
2.
Prepare the journal entry at December 31, 2014, to record the payment and interest:
Date
Account title & explanation
Debit
Credit
Dec 31,
2014
Installment
$ 52,350
Principle
$ 31,410
Interest ($261,750 * 8%)
$ 20,940
3.
Prepare the journal entry at December 31, 2015, to record the payment and interest:
Date
Account title & explanation
Debit
Credit
Dec 31,
2015
Installment
$ 52,350
Principle
$ 33,923
Interest ($261,750 - $31,410)* 8%)
$ 18,427
Date
Account title & explanation
Debit
Credit
Computer account
$ 366,450
Cash
$ 104,700
Installments (5*$52,350)
$ 261,750