LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2021. In payment for the $24 million purchase, LCD issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. Required: 1. Prepare the journal entry for LCD's purchase of the components on November 1, 2021. 2. Prepare the journal entry for the first installment payment on November 30, 2021. 3. What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2021?
LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2021. In payment for the $24 million purchase, LCD issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. Required: 1. Prepare the journal entry for LCD's purchase of the components on November 1, 2021. 2. Prepare the journal entry for the first installment payment on November 30, 2021. 3. What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:p. 817
E 14-21
Installment note
• LO14-3
LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2021. In payment for the $24 million purchase, LCD issued a 1-year installment note to be
paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%.
Required:
1. Prepare the journal entry for LCD's purchase of the components on November 1, 2021.
2. Prepare the journal entry for the first installment payment on November 30, 2021.
3. What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2021?
Expert Solution
Step 1
Purchase Price : $24 Million
Period : 12 Months
Monthly Interest Rate : 12% / 12 = 1%
Annuity rate = 1/(1+r)^-n))/r
where r is interest rate and n is number of payments
= 1/(1.01)^1 + 1/(1.01)^2 +1/(1.01)^3 +................1/(1.01)^12
= 11.25508
Monthly installment payment = Purchase price/ Annuity factor
Therefore,
Monthly installment payment = $24,000,000 /11.25508
= $2,132,370
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