Problem 14-9 Oriole Cosmetics Co. purchased machinery on December 31, 2016, payi

Question

Problem 14-9 Oriole Cosmetics Co. purchased machinery on December 31, 2016, paying $54,400 down and agreeing to pay the balance in four equal installments of $53,600 payable each December 31. An assumed interest of 10% is implicit in the purchase price Prepare the journal entries that would be recorded for the purchase and for (1) the payments and (2) interest on the following dates. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually) (a) December 31, 2016. (b) December 31, 2017. (c) December 31, 2018. (d) December 31, 2019 (e) December 31, 2020. No. Account Titles and xplanation Debit Credit

Explanation / Answer

Solution:

Fair value of machine = Down payment + Present value of installment at 10% interest rate

= $54,400 + $53,600 * cumulative PV factor at 10% for 4 periods

= $54,400 + $53,600 * 3.169865 = $224,305

Note Amortization Schedule Year Cash Paid Interest Expense Discount Amortized Carrying Value 0 $169,905 1 $53,600.00 $16,991 $16,991 $133,296 2 $53,600.00 $13,330 $13,330 $93,025 3 $53,600.00 $9,303 $9,303 $48,728 4 $53,600.00 $4,873 $4,873 $0

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---