Question

A. On 8/6/10 the company purchased some additional equipment from a restaurant that closed the previous month. The equipment was valued at $10,000 for which the company signed a two-year 6% note payable to Evian Sprinter with no payment due until maturity.
How do I enter this into Boston Catering Ch. 8 - QuickBooks Accountant Desktop 2015?

Answer 1

Answer:

Explanation:

If On 8/6/10 the company purchased some additional equipment and the equipment was valued at $10,000 for which the company signed a two-year 6% note payable to Evian Sprinter with no payment due until maturity.

Then the amount to be recorded as at today is a discounted value which is the present value of the amount the asset is purchased

PV = FV/(1+R)^2

PV = 10,000/(1.06)^2 = $8,900

Therefore acquisition date entry will be

Dr. Equipment....8,900

Cr. Future Obligation....8,900

At the end of 2010 we record the unwinding of the interest which is for 6 months

That will be calculated as 6% of 8900 * 6 months /12 months = 267

Dr. Interest Expense....267

Cr. Future Obligation........267

Being the unwinding of the interest for year to date on future obligation on equipment purchase.

At the end of 2011 we record the unwinding of the interest which is for the year

That will be calculated as 6% of (8900+267) = 550

Dr. Interest Expense....550

Cr. Future Obligation........550

Being the unwinding of the annual interest on future obligation - equipment purchase.

At the end of 2012 we record the unwinding of the interest which is for the 6 months in 2012

That will be calculated as 6% of (8900+267+550) *6/12 = 291

Dr. Interest Expense....291

Cr. Future Obligation........291

Being the unwinding of the interest for balance 6 months in 2012 on future obligation - equipment purchase.

Hence at the end of the two years the total amount = 8900+267+550+291 which gives approximately $10,000 as the future obligation to be settled