Cardinals Corporation purchased a computer on December 31, 2013, for $209,580, p
ID: 2716417 • Letter: C
Question
Cardinals Corporation purchased a computer on December 31, 2013, for $209,580, paying $59,880 down and agreeing to pay the balance in five equal installments of $29,940 payable each December 31 beginning in 2014. An assumed interest rate of 10% is implicit in the purchase price.
Prepare the journal entry at the date of purchase.
Prepare the journal entry at December 31, 2014, to record the payment and interest (effective interest method employed).
Prepare the journal entry at December 31, 2015, to record the payment and interest (effective interest method employed).
Please add explanation with the answer!
Date Account Titles and Explanation Debit Credit December 31, 2013 Equipment Discount on Notes Payable Notes Payable CashExplanation / Answer
1)
2)
3)
Working
1)Notes Payable = 29940*5 = 149700
Equipment = 59880 + 29940*(1-(1+10%)^-5)/10%
Equipment = 173376
Discount on Notes Payable = 209580-173376
Discount on Notes Payable = 36204
2) Interest Expense = (149700-36204)*10% = 11350
Amortisation of Discount = 11350
Unamortised discount = 36204 - 11350 = 24854
3) Interest Expenses = (149700-29940 - 24854)*10% = 9491
Date Account Title and Explaination Debit Credit December 31 2013 Equipment 173376 Discount on Notes Payable 36204 Notes Payable 149700 Cash 59880 (Recorded Purchase of Equipment)