Question

LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2018. In payment for the $25.0 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 24%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 20 points Required: 1. & 2. Prepare the journal entry for LCD's purchase of the components on November 1, 2018 and the first installment payment on November 30, 2018. 3. What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2018? eBook Hint Complete this question by entering your answers in the tabs below. Print References Req 1 and 2 Req3 What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2018? (Enter your answer in whole dollars.) 2018 interest expense Req 1 and 2 Req3

Answer 1

Solution 1&2:

Monthly interest rate = 24%/12 = 2%

Monthly installment amount = $25,000,000 / Cumulative PV factor at 2% for 12 periods = $25,000,000 / 10.57534 = $2,363,990

Journal Entries - LCD
Date	Particulars	Debit	Credit
1-Nov-18	Equipment Dr	$25,000,000.00
	To Notes Payable		$25,000,000.00
	(To record purchase of component by issue of note)
30-Nov-18	Interest expense Dr ($25,000,000*2%)	$500,000.00
	Notes payable Dr	$1,863,990.00
	To Cash		$2,363,990.00
	(To record installment payment)

Solution 3:

Interest expense for 2018 = $500,000 + ($25,000,000 - $1,863,990)*2% = $962,720