Waterway Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers' demand for its product. Waterway issues a(n) $720,000, 5-year, zero- interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $144,000 installments due at the end of each year over the life of the note. 1. Prepare the journal entry(ies) at the end of the first year to record the payment and interest, assuming that the company employs the effective-interest method. 2. Prepare the journal entryies) at the end of the second year to record the payment and interest. 3. Assuming that the equipment had a 10-year life and no salvage value, prepare the journal entry necessary to record depreciation in the first year. (Straight-line depreciation is employed.)

Waterway Inc. has decided to purchase equipment from Central Michigan Industries on January 2, 2020, to expand its production capacity to meet customers' demand for its product. Waterway issues a(n) $720,000, 5-year, zero- interest-bearing note to Central Michigan for the new equipment when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off the note in five $144,000 installments due at the end of each year over the life of the note. 1. Prepare the journal entry(ies) at the end of the first year to record the payment and interest, assuming that the company employs the effective-interest method. 2. Prepare the journal entryies) at the end of the second year to record the payment and interest. 3. Assuming that the equipment had a 10-year life and no salvage value, prepare the journal entry necessary to record depreciation in the first year. (Straight-line depreciation is employed.)

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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