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:
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Chapter C Solutions
FUND. OF FINANCIAL ACCT.-CONNECT ACCESS
- Discounting of Notes Payable On October 30, 2019, Sanchez Company acquired a piece of machinery and signed a 12-month note for 24,000. The lace value of the note includes the price of the machinery and interest. The note is to be paid in four 6,000 quarterly installments. The value of the machinery is the present value of the four quarterly payments discounted at an annual interest rate of 16%. Required: 1. Prepare all the journal entries required to record the preceding information including the year-end adjusting entry and any payments. Present value techniques should be used. 2. Show how the preceding items would be reported on the December 31, 2019, balance sheet.arrow_forwardComprehensive Notes Receivable On January 1, 2019, Seaver Company sold land with a book value of 23,000 to Bench Company. Bench paid 15,000 down and signed a 15,000 non-interest-bearing note, payable in two 7,500 annual installments on December 31, 2019, and 2020. Neither the fair value of the land nor of the note is determinable. Benchs incremental borrowing rate is 12%. Later in the year, on July 1, 2019, Seaver sold a building to Hane Company, accepting a 2-year, 100,000 non-interest-bearing note due July 1, 2021. The fair value of the building was 82,644.00 on the date of the sale. The building had been purchased at a cost of 90,000 on January 1, 2014, and had a book value of 67,500 on December 31, 2018. It was being depreciated on a straight-line basis (no residual value) over a 20-year life. Required: 1. Prepare all the journal entries on Seavers books for January 1, 2019, through December 31, 2020, in regard to the Bench note. 2. Prepare all the journal entries on Seavers books for July 1, 2019, through July 1, 2021, in regard to the Hane note. 3. Prepare the notes receivable portion of Seavers balance sheet on December 31, 2019 and 2020.arrow_forwardSerial Installments; Amounts Applicable to Interest and Principal Ronald McDuffie purchases a new car at a cost of 14,400. He pays 3,000 down and issues an installment note payable by which he promises to pay the balance in 18 equal monthly installments, which include interest at an annual rate of 18% on the remaining unpaid balance at the beginning of each month starting with the first month after the purchase. Required: 1. Compute the equal installment payments. 2. Compute the interest that will be paid for each of the first two periods. Indicate the amount of each payment that will be a reduction of principal.arrow_forward
- ExerciseInstallment Notes ABC bank loans $250,000 to Yossarian to purchase a new home. Yossarian will repay the note in equal monthly payments over a period of 30 years. The interest rate is 12%. Required: If the monthly payment is $2,571.53, how much of the first payment is interest expense and how much is principal repayment? (Note: Round to the nearest cent.)arrow_forwardNon-Interest-Bearing Note Payable: Present Value On January 1, 2019, Northern Manufacturing Company bought a piece of equipment by signing a non-interest-bearing 80,000, 1-year note. The face value of the note includes the price of the equipment and the interest. The effective interest rate is an annual rate of 16%, and the note is to be paid in four 20,000 quarterly installments on March 31, June 30, September 30, and December 31. The price of the equipment is the present value of the four payments discounted at the effective interest rate. Required: Prepare all journal entries to record the preceding information. Present value techniques should be used. If Northerns financial statements were issued on June 30, 2019, what amount would the company report as notes payable?arrow_forwardFuture Value Hugh Colson deposited 20,000 in a special savings account that provides for interest at the annual rate of 12% compounded semiannually if the deposit is maintained for 4 years. Required: Calculate the balance of the savings account at the end of the 4-year period.arrow_forward
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