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?
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter7: Financial Activities
Section: Chapter Questions
Problem 23PC
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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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