Question

Larkspur 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. Larkspur issues a(n) $2,240,000, 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 $448,000 installments due at the end of each year over the life of the note.

(a) Your answer is correct. Prepare the journal entry at the date of purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 2 of 3 used

(b) Your answer is correct. Prepare the journal entry at the end of the first year to record the payment and interest, assuming that the company employs the effective-interest method. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT Attempts: 1 of 3 used

(c) Your answer is partially correct. Try again. Prepare the journal entry at the end of the second year to record the payment and interest. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit I just need Part C. Thank you.

Answer 1

X fic period annual installment present value annuity factor (12%, 5 periods) value of equipment to be recorded $ 448,000 3.60478 $1,614,941 period interest expense amortization schedule installment paid decrease in note's value carrying value of note $ 1,614,941 $448,000 $ 254,207 $ 1,360,734 $ 448,000 $ 284,712 $ 1,076,022 $ 193,793 $ 163,288 account titles and explanation debit credit $ 1,614,941 equipment notes payable (to record purchase of equipment) $ 1,614,941 $ 193,793 $ 254,207 interest expense notes payable cash (to record installment paid) $ 448,000 $ 163,288 $ 284,712 interest expense notes payable cash (to record installment paid) $ 448,000

for formulas and calculations, refer to the image below -

. : x fc period annual installment 448000 present value annuity factor (12%, 5 periods) =ROUND(-PV(12%,5,1),5) value of equipment to be recorded =ROUND(D2 D3,0) = amortization schedule installment paid interest expense decrease in note's value carrying value of note =D4 =D9-C9 =F8-E9 =D10-C10 =F9-E10 =ROUND(F8*12%,0) =ROUND(F9*12%,0) =$D$2 =$D$2 account titles and explanation debit credit equipment notes payable (to record purchase of equipment) =D14 68 interest expense notes payable cash (to record installment paid) =D9 =C10 =E10 interest expense notes payable cash (to record installment paid) =D10

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