Help File

Cardinals Corporation purchased a computer on December 31, 2013, for $210,630, paying $60,180 down and agreeing to pay the balance in five equal installments of $30,090 payable each December 31 beginning in 2014. An assumed interest rate of 9% is implicit in the purchase price. Prepare the journal entry at the date of purchase. (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. Round factor values to 5 decimal places, e.g. 1.25124.) (4 accounts) Prepare the journal entry at December 31, 2014, to record the payment and interest (effective interest method employed). (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.) (4 accounts) Prepare the journal entry at December 31, 2015, to record the payment and interest (effective interest method employed). (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.) Solution:

(a) Equipment.............................................................. 177,219.60* Discount on Notes Payable .............................................33,410.39 Cash ................................................................................. 60,180 Notes Payable ................................................................... 150,450 *PV of $30,090 annuity @ 9% for 5 years ($30,090 X 3.88965) $ 117,039.6 Down payment

60,180

Capitalized value of equipment $177,219.60 (b) Notes Payable........................................................ 30,090 Interest Expense (see schedule)......................... 10,533.56 Cash................................................................. 30,090

Discount on Notes Payable ............................... 10,553.56

Year

Note Payment

9% Interest

Reduction of

Balance

Principal

12/31/09

$117,039.6

12/31/10

$30,090.00

$10,533.56

$19,556.44

97,483.17

12/31/11

30,090.00

8,773.49

21,316.51

76,166.66

(c) Notes Payable.................................................. 30,090.00 Interest Expense ................................................... 8,773.49 Cash............................................................................ 30,090.00 Discount on Notes Payable.............................................. 8,773.49