Please Read Instructions Carefully, and only use accounts from this list. Please
ID: 2590623 • Letter: P
Question
Please Read Instructions Carefully, and only use accounts from this list. Please show work to ensure accuracy. Thank you.
On December 31, 2017, Ling Company acquired a computer from Martinez Corporation by issuing a $609,000 zero-interest-bearing note, payable in full on December 31, 2021. Nash Company’s credit rating permits it to borrow funds from its several lines of credit at 12%. The computer is expected to have a 5-year life and a $63,000 salvage value.
Accounts Given:
This is all the information Given, Please only respond if you know the answer. Thank you
Accumulated Depreciation-EquipmentAccumulated Depreciation-Machinery
Allowance for Doubtful Accounts
Bad Debt Expense
Bond Issue Expense
Bonds Payable
Buildings
Cash
Common Stock
Debt Investments
Depreciation Expense
Discount on Bonds Payable
Discount on Notes Payable
Discount on Notes Receivable
Equipment
Equity Investments
Gain on Disposal of Machinery
Gain on Disposal of Land
Gain on Disposal of Plant Assets
Gain on Redemption of Bonds
Gain on Restructuring of Debt
Gain on Sale of Machinery
Interest Expense
Interest Payable
Interest Receivable
Interest Revenue
Land
Loss on Disposal of Land
Loss on Redemption of Bonds
Machinery
Mortgage Payable
No Entry
Notes Payable
Notes Receivable
Paid-in Capital in Excess of Par - Common Stock
Paid-in Capital in Excess of Par - Preferred Stock
Premium on Bonds Payable
Sales Revenue
Unamortized Bond Issue Costs
Unearned Revenue
Unearned Sales Revenue
Unrealized Holding Gain or Loss - Income Prepare the journal entry for the purchase on December 31, 2017. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit December 31, 2017 SHOW LIST OF ACCOUNTS Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective- interest method) on December 31, 2018. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Date Account Titles and Explanation Debit Credit December 31, 2018 (To record the depreciation.) December 31, 2018 To amortize the discount.)
Explanation / Answer
1. Calculation of Present Value of Zero interest note payable.
Present Value of 4 year note = $609,000 / (1+i)4 = 609,000 / (1+12%)4 = $387,030
Since the present value of note is $387,030 company should record the cost price of computer at $387,030. Remaining amount will be contra liability amounting to $(609,000 - 387,030) = 221,970 which will be recorded as Discount on notes payable. Such discount will be shown as net of amount from notes payable account and will be amortized equally over the period of notes.
Journal Entry
Date
Account
Debit
Credit
Dec 31
Equipment Account
Discount on notes payable
TO Notes Payable
387,030
221,970
609,000
Journal Entry for Depreciation and Discount Amortization
Date
Account
Debit
Credit
Dec 31 2018
Depreciation Account
TO Accumulated Depreciation
(387030 – 63,000) / 5
64,806
64,806
Dec 31 2018
Interest Expense
TO Discount on notes payable
(221970 / 4)
55,492.5
55,492.5
Schedule of Discount Amortization
Date
Discount Amortization
Carrying Amount
12/31/2017
221,970
609,000 – 221,970 = 387,030
12/31/2018
221,970 – 55,492.5 = 166,477.5
609,000 – 166,477.5 = 442,522.5
12/31/2019
166,477.5 – 55492.5 = 110,985
609,000 – 110,985 = 498,015
12/31/2020
110,985 – 55492.5 = 55,492.5
609,000 – 55,492.5 = 553,507.5
12/31/2021
55,492.5 – 55,492.5 = 0
609,000 – 0 = 609,000
Journal Entries for Depreciation & Amortization for Dec 2019
ournal Entry for Depreciation and Discount Amortization
Date
Account
Debit
Credit
Dec 31 2018
Depreciation Account
TO Accumulated Depreciation
(387030 – 63,000) / 5
64,806
64,806
Dec 31 2018
Interest Expense
TO Discount on notes payable
(221970 / 4)
55,492.5
55,492.5
Date
Account
Debit
Credit
Dec 31
Equipment Account
Discount on notes payable
TO Notes Payable
387,030
221,970
609,000