Problem 14-8 On December 31, 2017, Headland Company acquired a computer from Pla
ID: 2594780 • Letter: P
Question
Problem 14-8 On December 31, 2017, Headland Company acquired a computer from Plato Corporation by issuing a $633,000 zero-interest-bearing note, payable in full on December 31 2021. Headland Company's credit rating permits it to borrow funds from its several lines of credit at 12%. The computer is expected to have 5-year fe and $66,000 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 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 O 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.) Date Account Titles and Explanation Debit Credit December 31, 2018Explanation / Answer
Date
Account titles and explanation
debit
credit
December 31, 2017
Computer equipment
402283
Discount on Notes Payable
230717
Notes payable
633000
PV of notes payable = (633000/(1.12^4) = 402283
Discount = 633000-402283 = 230717
Date
Account titles and explanation
debit
credit
December 31, 2018
Depreciation Expense
67256.60
Accumulated Depreciation Computer
67256.60
To record depreciaiton
Depreciation =(402283-66000)/5 = 67256.60
Date
Account titles and explanation
debit
credit
December 31, 2018
Interest Expense
52296.76
Discount on Notes Payable
52296.76
To amortize the discount
date
Debit, interest expense credit, discount on notes payable
Carrying amount of note
12/31/17
402283
12/31/18
52296.79
454579.79
12/31/19
59095.37
513675.16
12/31/20
66777.77
580452.93
12/31/21
52547.07
633000
Debit, interest expense credit, discount on notes payable = carrying of value of previous year*12
Carrying amount of note = carrying amount of previous year + calculated Debit, interest expense credit, discount on notes payable of current year
Date
Account titles and explanation
debit
credit
December 31, 2019
Depreciation Expense
67256.60
Accumulated Depreciation Computer
67256.60
To record depreciaiton
Depreciation =(402283-66000)/5 = 67256.60
Date
Account titles and explanation
debit
credit
December 31, 2019
Interest Expense
59095.37
Discount on Notes Payable
59095.37
To amortize the discount
Date
Account titles and explanation
debit
credit
December 31, 2017
Computer equipment
402283
Discount on Notes Payable
230717
Notes payable
633000