Cardinals Corporation purchased a computer on December 31, 2013, for $250,740, p
ID: 2473307 • Letter: C
Question
Cardinals Corporation purchased a computer on December 31, 2013, for $250,740, paying $71,640 down and agreeing to pay the balance in five equal installments of $35,820 payable each December 31 beginning in 2014. An assumed interest rate of 10% is implicit in the purchase price.
Prepare the journal entry at the date of purchase.
Prepare the journal entry at December 31, 2014, to record the payment and interest (effective interest method employed).
Prepare the journal entry at December 31, 2015, to record the payment and interest (effective interest method employed).
Explanation / Answer
Journal Entry at the date of purchase:
Date
Accounts Titles and Explanations
Debit
Credit
Dec. 31, 2013
Computer
$ 250,740.00
Cash (Down payment)
$ 71,640.00
Note Payable (250740-71640)
$ 179,100.00
(Being computer purchased )
Journal Entry at December 31, 2014, to record the payment and interest (effective interest method employed)
Date
Accounts Titles and Explanations
Debit
Credit
Dec. 31, 2014
Note Payable
$ 17,910.00
Interest Expense
$ 17,910.00
Cash
$ 35,820.00
(Being Installment paid in interest accrued)
Calculation:
Note Payable as on Dec. 31, 2014 = 179100
Effective Interest for the year 2014 = $179100*10% = $17910
Installment paid = $35820
Principal Repaid = 35820 - 17910 = $17910
Journal Entry at December 31, 2014, to record the payment and interest (effective interest method employed)
Date
Accounts Titles and Explanations
Debit
Credit
Dec. 31, 2015
Note Payable
$ 19,701.00
Interest Expense
$ 16,119.00
Cash
$ 35,820.00
(Being Installment paid in interest accrued)
Calculation:
Note Payable as on Dec. 31, 2015 = 179100-17910 = $161190
Effective Interest for the year 2014 = $161190*10% = $16119
Installment paid = $35820
Principal Repaid = 35820 - 16119 = $19701
Journal Entry at the date of purchase:
Date
Accounts Titles and Explanations
Debit
Credit
Dec. 31, 2013
Computer
$ 250,740.00
Cash (Down payment)
$ 71,640.00
Note Payable (250740-71640)
$ 179,100.00
(Being computer purchased )
Journal Entry at December 31, 2014, to record the payment and interest (effective interest method employed)
Date
Accounts Titles and Explanations
Debit
Credit
Dec. 31, 2014
Note Payable
$ 17,910.00
Interest Expense
$ 17,910.00
Cash
$ 35,820.00
(Being Installment paid in interest accrued)
Calculation:
Note Payable as on Dec. 31, 2014 = 179100
Effective Interest for the year 2014 = $179100*10% = $17910
Installment paid = $35820
Principal Repaid = 35820 - 17910 = $17910
Journal Entry at December 31, 2014, to record the payment and interest (effective interest method employed)
Date
Accounts Titles and Explanations
Debit
Credit
Dec. 31, 2015
Note Payable
$ 19,701.00
Interest Expense
$ 16,119.00
Cash
$ 35,820.00
(Being Installment paid in interest accrued)
Calculation:
Note Payable as on Dec. 31, 2015 = 179100-17910 = $161190
Effective Interest for the year 2014 = $161190*10% = $16119
Installment paid = $35820
Principal Repaid = 35820 - 16119 = $19701