Question

In, January 1,2018.Faital plc acquired a computer from plato group by issuing $600,000 zero interest bearing note, payable in full on January 1,2023 .Faital company credit rating permits it to borrow funds from its several lines of credit are computer is expected to have a 5year life and a $70,000 residual value.

Answer 1

Answer:

a) Equipment 372,552.80

          Note Payable      372,552.80

b) depreiciaton expense 75638.2 debit

          acc dep equipment   75638.2 credit

interest expense 37,255.28 debit

      note payable       37,255.28 credit

Missing information it allows to get credit at 10%

Question

a, prepare the journal entry for the purchase on january1,2018.

b, prepare any necessary adjusting entries relative to depreciation (use straight line) amortization on december31,2018.

Explanation:

First we discount the note to get the present value of the note.

$\frac{Maturity}{(1 + rate)^{time} } = PV$  

Maturity $600,000.00

time       5 years

rate  0.10

$\frac{600000}{(1 + 0.1)^{5} } = PV$  

PV   372,552.7938

(acquisition - salvage) / useful life = depreciation

(372,552.80 - 70,000) / 5 = depreciation per year

dep = 75,638.2

Interest for the year

372,552.80 x .10 = 37,255.28