1.
To Compute: The present value of the note, rounded to the nearest dollar, using a typical interest rate of 6%.
1.
Answer to Problem 3CP
The present value of the note, rounded to the nearest dollar, using a typical interest rate of 6%, is $26,730.
Explanation of Solution
Present value is the amount of future value reduced or discounted at a rate of interest till particular current date.
Formula to compute present value of single payment with tables:
Compute the present value of the note, rounded to the nearest dollar, using a typical interest rate of 6%.
2.
To Journalize: An entry to record the purchase of the equipment, rounded to the nearest dollar.
2.
Answer to Problem 3CP
The
Date | Account Title | Debit ($) | Credit ($) |
Equipment | $26,730 | ||
Notes payable | $26,730 | ||
(To record the purchase of equipment) |
Table (1)
Explanation of Solution
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
3.
To Journalize: An
3.
Answer to Problem 3CP
The adjusting entry to record first payment at the end of the first year is shown below.
Date | Account Title | Debit ($) | Credit ($) |
Interest Expense(1) | $1,604 | ||
Notes payable(2) | $8,396 | ||
Cash | $10,000 | ||
(To record the first payment) |
Table (2)
Explanation of Solution
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
- Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Working Notes:
Calculate the interest on the notes payable:
Calculate the amount paid on the notes payable:
4.
To Journalize: An adjusting entry to record the second payment at the end of the second year.
4.
Answer to Problem 3CP
The adjusting entry to record the second payment at the end of the second year is shown below.
Date | Account Title | Debit ($) | Credit ($) |
Interest Expense(3) | $1,100 | ||
Notes payable(4) | $8,900 | ||
Cash | $10,000 | ||
(To record the second payment) |
Table (3)
Explanation of Solution
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
- Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Working Notes:
Calculate the interest on the notes payable:
Calculate the amount paid on the notes payable:
5.
To Journalize: An entry to record the payment for the equipment, rounded to the nearest dollar.
5.
Answer to Problem 3CP
The journal entry to record the payment for equipment is shown below.
Date | Account Title | Debit ($) | Credit ($) |
Interest Expense(5) | $566 | ||
Notes payable(6) | $9,434 | ||
Cash | $10,000 | ||
(To record the third payment) |
Table (4)
Explanation of Solution
Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
- Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
Working Notes:
Calculate the interest on the notes payable:
Calculate the amount paid on the notes payable:
Want to see more full solutions like this?
Chapter C Solutions
Fundamentals Of Financial Accounting
- Answer b from the image attachedarrow_forwardHappy Company sold a machine in exchange for a P750,000, 5-year, 14% note; interest is payable annually. How much is the total amount of interest collected for this note for 5 years? tart How much cash will be collected at the end of the term of the note? ssments ( Previous rences fessorsarrow_forwardi need the answer quicklyarrow_forward
- Legendary Corporation purchased equipment and in exchange signed a three-year promissorynote. The note requires Legendary to make equal annual payments of $10,000 at the end of each ofthe next three years. Legendary has other promissory notes that charge interest at the annual rateof 6 percent.Required:1. Compute the present value of the note, rounded to the nearest dollar, using Legendary’s typical interest rate of 6 percent.2. Show the journal entry to record the equipment purchase (round to the nearest dollar).TIP: Record the liability as a Note Payable.3. Show the journal entry at the end of the first year to record the first payment of $10,000.4. Show the journal entry at the end of the second year to record the second payment of $10,000.5. Show the journal entry at the end of the third year to record the third payment of $10,000.arrow_forwardhi kindly answer the question on attached file. Thank you :)arrow_forward4. On 1/1/21 we sell equipment and accept a 3-year note receivable for $36,500. The market value is $36,500. Payments of $13,655 include both principal and interest and are to be made annually starting on 1/1/22. The present value of the payments is $36,500. The bank would require the purchaser to pay interest of 6% in order to borrow from them. The equipment cost us $90,000 and had a book value of $40,000. Note: Be sure to show the date of each journal entry. The 'right' journal entry on the 'wrong' date is wrong. a. Prepare an amortization table b. Prepare the journal entry for 1/1/21 c. Prepare the journal entry for 12/31/21 d. Prepare the journal entry for 1/1/22 Amortization table: Journal entries: Debits Credits 1/1/21 12/31/21 1/1/22arrow_forward
- Access an online loan calculator with annual payments, such as the one at mycalculators.com, to produce an amortization schedule for Welton Corporation's installment note that has original principal of $36,000, interest of 5% compounded annually, and a term of 3 years. Welton Corporation established the note on the first day of its fiscal year and will fully repay the note by the end of year 3 on its December 31 fiscal year-end. Prepare Welton Corporation's journal entries on (a) January 1, Year 1; (b) December 31, Year 1; (C) December 31, Year 2; and (d) December 31, Year 3. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest dollar amount.) View transaction list Journal entry worksheet 2 3 4 > Record the issuance of the note on January 1, Year 1. Note: Enter debits before credits. Transaction General Journal Debit Credit (a) Record entry Clear…arrow_forward- 9. Martin company purchased an equipment in exchange of an installment note, promising to pay $16.000 at the end of each year for a period of 4 years. The implicit rate of interest 6% What is the balance of the Note Payable after the first annual payment (round to the nearest dollar)? A) $42,768 B) $38,195 C) $41,229 $41,989arrow_forwardABC Company acquired a loan from New Kensington Bank in the amount of $120,000 with a 8% interest rate. The loan will be repaid in exactly one year. A stipulation of the loan requires ABC Company to keep a compensating balance of $25,000 in a New Kensington Bank checking account. What is the effective interest rate that ABC Company will pay? Please round to the second decimal place. 10.11% 9.67% 8.00% 6.62%arrow_forward
- n.c.arrow_forwardA one year note payable is issued by a bank to ABC company to purchase a photocopy machine valued at $7,000. The amount owing to the bank for the note must be paid back in one year. Hence, this is a short-term note payable. The interest rate charged by the bank is 12%. Interest charged on the note is included in the payment of $10,000 to be paid to the bank at the end of the year. Required: (a) Calculate the present value of the note (PV). (a) (b) Record the journal entry: i. on the day the asset is purchased General Journal POST DATE ACCOUNT TITLE AND EXPLANATION REF DEBIT CREDIT ii. on the day the note payable is paid back to the bank. General Journal POST DATE ACCOUNT TITLE AND EXPLANATION REF. DEBIT CREDIT AND Earrow_forwardOn January 1, 20X1, Bouncy House, Inc. obtains a $50,000, 6 year, 8% installment note for the latest and greatest bouncy house. Bouncy House is required to make annual payments. The first payment occurs on December 31, 20X1. а. Calculate your annual payment amount. b. Create the loan amortization schedule (table). Record the first three journal entries. d. How much total interest does Bouncy House pay on this installment note? С.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTPfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage LearningIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning