Handy Products signed a contract with Cooper Manufacturing to design, develop, and produce a specialized plastic molding machine for its factory operations. The machine is not currently sold to the public. Handy issued a 4%, 8-year, $720,000 note payable to Cooper to pay for the machine. If Handy were required to borrow at a commercial bank to finance the acquisition, it would have incurred the current market rate of 8%. Assume that all transactions occurred at the beginning of the current fiscal year (January 1). Interest is paid at the end of each year. Requirement a. Prepare the journal entry required to record the asset acquisition. (Record debits first, then credits. Exclude explanations from any journal entries. Use the present value and future value tables, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answers to the nearest whole dollar.) Account Year of Acquisition Molding Machine Discount on Notes Payable Notes Payable Prepare the amortization table for the note payable through year 3. (Round your final answers to the nearest whole dollar.) Cash Effective Discount Carrying Date Interest Interest Amortized Value (a) (b) (c) (d) At issuance 1 2 3 Record the interest expense for the first 2 years. (Record debits first, then credits. Exclude explanations from any journal entries.) Record the interest expense for year 1. Account Year 1 Record the interest expense for year 2. Account Year 2 Indicate the effects of these transactions (i.e., the asset acquisition and the interest payment and amortization of discount) on the current year-end balance sheet (ignore cash effects), income statement, and cash flow statement under the direct and indirect methods. First indicate the effects of these transactions on the current year-end balance sheet (ignore cash effects) and income statement. (If an input field is not used in the table, leave the field empty; do not select a label. If there is no effect on the financial statement, select "No effect" and leave all remaining fields blank. Abbreviations Used: LT = Long-term.) Transaction Balance Sheet Income Statement Asset acquisition Interest payment and discount amortization Now indicate the effects of these transactions on the cash flow statement under the direct and indirect methods. When considering the effect on the statement of cash flow, consider only items that are separately stated on the cash flow statement (exclude items considered in the calculation of net income). (If an input field is not used in the table, leave the field empty; do not select a label. If there is no effect on the financial statement, select the applicable "No effect" response on one line and leave all remaining fields blank. Abbreviations Used: NC = Noncash, NCIF = Noncash Investing and financing activities. OA = Operating activities, IA = Investing activities, FA = Financing activities.) Cash Flow Statement Transaction Direct Indirect Asset acquisition Interest payment and discount amortization Independent of parts (a)-(d), assume that the molding machine is sold to the general public on a regular basis and has a fair value of $580,000. Prepare the journal entry to record the acquisition of the machine from Cooper. (Record debits first, then credits. Exclude explanations from any journal entries.) Account Year of Acquisition

Handy Products signed a contract with Cooper Manufacturing to design, develop, and produce a specialized plastic molding machine for its factory operations. The machine is not currently sold to the public. Handy issued a 4%, 8-year, $720,000 note payable to Cooper to pay for the machine. If Handy were required to borrow at a commercial bank to finance the acquisition, it would have incurred the current market rate of 8%. Assume that all transactions occurred at the beginning of the current fiscal year (January 1). Interest is paid at the end of each year. Requirement a. Prepare the journal entry required to record the asset acquisition. (Record debits first, then credits. Exclude explanations from any journal entries. Use the present value and future value tables, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answers to the nearest whole dollar.) Account Year of Acquisition Molding Machine Discount on Notes Payable Notes Payable Prepare the amortization table for the note payable through year 3. (Round your final answers to the nearest whole dollar.) Cash Effective Discount Carrying Date Interest Interest Amortized Value (a) (b) (c) (d) At issuance 1 2 3 Record the interest expense for the first 2 years. (Record debits first, then credits. Exclude explanations from any journal entries.) Record the interest expense for year 1. Account Year 1 Record the interest expense for year 2. Account Year 2 Indicate the effects of these transactions (i.e., the asset acquisition and the interest payment and amortization of discount) on the current year-end balance sheet (ignore cash effects), income statement, and cash flow statement under the direct and indirect methods. First indicate the effects of these transactions on the current year-end balance sheet (ignore cash effects) and income statement. (If an input field is not used in the table, leave the field empty; do not select a label. If there is no effect on the financial statement, select "No effect" and leave all remaining fields blank. Abbreviations Used: LT = Long-term.) Transaction Balance Sheet Income Statement Asset acquisition Interest payment and discount amortization Now indicate the effects of these transactions on the cash flow statement under the direct and indirect methods. When considering the effect on the statement of cash flow, consider only items that are separately stated on the cash flow statement (exclude items considered in the calculation of net income). (If an input field is not used in the table, leave the field empty; do not select a label. If there is no effect on the financial statement, select the applicable "No effect" response on one line and leave all remaining fields blank. Abbreviations Used: NC = Noncash, NCIF = Noncash Investing and financing activities. OA = Operating activities, IA = Investing activities, FA = Financing activities.) Cash Flow Statement Transaction Direct Indirect Asset acquisition Interest payment and discount amortization Independent of parts (a)-(d), assume that the molding machine is sold to the general public on a regular basis and has a fair value of $580,000. Prepare the journal entry to record the acquisition of the machine from Cooper. (Record debits first, then credits. Exclude explanations from any journal entries.) Account Year of Acquisition

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Record the interest expense for year 2.

Account	Year 2

Indicate the effects of these transactions (i.e., the asset acquisition and the interest payment and amortization of discount) on the current year-end balance sheet (ignore cash effects), income statement, and cash flow statement under the direct and indirect methods.

First indicate the effects of these transactions on the current year-end balance sheet (ignore cash effects) and income statement. (If an input field is not used in the table, leave the field empty; do not select a label. If there is no effect on the financial statement, select "No effect" and leave all remaining fields blank. Abbreviations Used: LT = Long-term.)

Transaction	Balance Sheet	Income Statement
Asset acquisition

Interest payment and
discount amortization

Now indicate the effects of these transactions on the cash flow statement under the direct and indirect methods. When considering the effect on the statement of cash flow, consider only items that are separately stated on the cash flow statement (exclude items considered in the calculation of net income). (If an input field is not used in the table, leave the field empty; do not select a label. If there is no effect on the financial statement, select the applicable "No effect" response on one line and leave all remaining fields blank. Abbreviations Used: NC = Noncash, NCIF = Noncash Investing and financing activities. OA = Operating activities, IA = Investing activities, FA = Financing activities.)

	Cash Flow Statement
Transaction	Direct	Indirect
Asset acquisition

Interest payment
and discount amortization

Independent of parts (a)-(d), assume that the molding machine is sold to the general public on a regular basis and has a fair value of $580,000. Prepare the journal entry to record the acquisition of the machine from Cooper. (Record debits first, then credits. Exclude explanations from any journal entries.)

Account	Year of Acquisition

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	Cash	Effective	Discount	Carrying
Date	Interest	Interest	Amortized	Value
	(a)	(b)	(c)	(d)
At issuance
1
2
3

Account	Year of Acquisition
Molding Machine
Discount on Notes Payable
Notes Payable