Problem 14-8 On December 31, 2017, Marigold Company acquired a computer from Pla

ID: 2592121 • Letter: P

Question

Problem 14-8 On December 31, 2017, Marigold Company acquired a computer from Plato Corporation by issuing a $597,000 zero-interest-bearing note, payable in full on December 31, 2021. Marigold Company's credit rating permits it to borrow funds from its several lines of credit at 10%. The computer is expected to have a 5-year life and a $72,000 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 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.) DateAccount Titles and Explanation Debit Credit December 31, 2018 To record the depreciation.) December 31, 2018 To amortize the discount.) Schedule of Note Discount Amortization Debit, Interest Expense Credit, Carrying Amount Date Discount on Notes Payable of Note 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2019. (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.) DateAccount Titles and Explanation Debit Credit December 31 2019 To record the depreciation.) December 31, 2019 (To amortize the discount.)

Explanation / Answer

Present Value of note payable = 597000*Present value interest factor (10%, 4)

= 597000*0.68301 = 407757

Journal entry for purchase on December 31, 2017:

Computer Dr 407757

Note Payable Cr 407757

Journal entry for depreciation as on December 31, 2018:

Depreciation = (407757 – 72000)/5 = 335757/5 = 67151

Journal:

Depreciation expense Dr 67151

Accumulated depreciation Cr 67151

Journal entry for amortisation as on December 31, 2018:

Amortisation Expense Dr 40776

Note Payable Cr 40776

Present Value of note payable = 597000*Present value interest factor (10%, 4)

= 597000*0.68301 = 407757

Date

Debit, Interest Expense Credit, Discount on Notes Payable

Carrying amount of Note

12/31/17

407757

12/31/18

407757*10% = 40776

448533

12/31/19

448533*10% = 44853

493386

12/31/20

493386*10% = 49339

542725

12/31/21

54275

597000

Journal entry for depreciation as on December 31, 2019: