Problem 14-8 On December 31, 2017, Bridgeport Company acquired a computer from P
ID: 2591539 • Letter: P
Question
Problem 14-8 On December 31, 2017, Bridgeport Company acquired a computer from Plato Corporation by issuing a $574,000 zero-interest-bearing note, payable in full on December 31, 2021, Bridgeport 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 $76,000 salvage value. 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 Equipment Discount on Notes Payable Notes Payable 574,000Explanation / Answer
Ans. 1 Date Account Titles & Explanations Debit Credit 31/12/2017 Equipment 364789 Discount on Notes Payable 209211 Notes Payable 574000 *Calculaiton of Present Value of Equipment: P. V. at 12% discount factor Fair Value: 574000 1 0.89286 Interest Rate: 12% 2 0.79719 Period: 4 years 3 0.71178 Persent value factor (for 4th year) 574000 * 0.63552 4 0.63552 364788.5 rounded off 364789 *Discount on Notes Payable = Notes payable - Equipment Ans. 2 Date Account Titles & Explanations Debit Credit 31/12/2018 Depreciation Expense 57758 Accumulated Depreciation Equipment 57758 31/12/2018 Interest Expense 43775 Discount on Notes Payable 43775 *Calculation of Depreciation Expenses: (Cost of Equipment - Salvage Value) / Life (364789 - 76000) / 5 57757.8 57758 (rounded off) *Interest Expenses (364789 * 12%) 43774.6 (rounded off) 43775 Ans.3 Schedule of Note Discount Amortization Date Debit, Interest Expense Credit, Discount on Notes Payable Carrying Amount of Note 12% 12/31/2017 12/31/2018 43774.6 (364788.5 * 12%) (364788.5 - 43774.6) = 321013.9 12/31/2019 38521.8 (321013.9 * 12%) (321013.9 - 38521.8) = 282492.1 12/31/2020 33899.1 (282492.1 * 12%) (282492.1 - 33899.1) = 248593 12/31/2021 29831.2 (248593 * 12%) (248593 - 29831.2) = 218761.8 Ans.4 Date Account Titles & Explanations Debit Credit 31/12/2019 Depreciation Expense 57758 Accumulated Depreciation Equipment 57758 31/12/2019 Interest Expense 38522 Discount on Notes Payable 38522 *Interest Expenses = 38521.8 rounded 38522