/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q9P (Entries for Zero-Interest-Beari... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 14: Q9P (page 762)

(Entries for Zero-Interest-Bearing Note; Payable in Installments) Sabonis Cosmetics Co. purchased machinery on December 31, 2016, paying \(50,000 down and agreeing to pay the balance in four equal installments of \)40,000 payable each December 31. An assumed interest of 8% is implicit in the purchase price.

Instructions Prepare the journal entries that would be recorded for the purchase and for the payments and interest on the following dates.

(Round answers to the nearest cent.)

(a) December 31, 2016. (d) December 31, 2019.

(b) December 31, 2017. (e) December 31, 2020.

(c) December 31, 2018.

Short Answer

Expert verified
  1. Capitalized value of machine is $182,500.
  2. Discount amortized on 31 December 2017 totals$10,600.
  3. Discount amortized on 31 December 2018 totals$8,248.
  4. Discount amortized on 31 December 2019 totals$5,708.
  5. Discount amortized on 31 December 2020 totals $2,965.

Step by step solution

01

Definition of Note Payable

Note payable can be defined as the written promise under which the writerpromises to repay the borrowed amount. It is generally reported as a short-term liability.

02

Journal entries on December 31, 2016

Date

Accounts and Explanation

Debit ($)

Credit ($)

31, Dec 2016

Machine

182,500

Discount on notes payable

27,500

Cash

50,000

Note payable

160,000

(To record the purchase of machine against note)

Working note:

Particular

Amount $

Present value of the note payable ($40,000 @ 8% for 4 years) (3.3125)

$132,500

Down payment

$50,000

The capitalized value of the machine

$182,500

Amortization Schedule:

Date

Cash paid

Interest expenses

Amortization

Carrying amount of note

31 Dec 2016

$132,500

31 Dec 2017

$40,000

$10,600

$29,400

$103,100

31 Dec 2018

$40,000

$8,248

$31,752

$71,348

31 Dec 2019

$40,000

$5,708

$34,292

$37,056

31 Dec 2020

$40,000

$2,965

$37,056

$0

03

Journal entries on December 31, 2017

Date

Accounts and Explanation

Debit ($)

Credit ($)

31 Dec 2017

Note payable

$40,000

Cash

$40,000

31 Dec 2017

Interest expenses

$10,600

Discount on notes payable

$10,600

04

Journal entries on December 31, 2018

Date

Accounts and Explanation

Debit ($)

Credit ($)

31 Dec 2018

Note payable

40,000

Cash

40,000

31 Dec 2018

Interest expenses

8,248

Discount on notes payable

8,248

05

Journal entries on December 31, 2019

Date

Accounts and Explanation

Debit ($)

Credit ($)

31 Dec 2019

Note payable

40,000

Cash

40,000

31 Dec 2019

Interest expenses

5,708

Discount on notes payable

5,708

06

Journal entries on December 31, 2020

Date

Accounts and Explanation

Debit ($)

Credit ($)

31 Dec 2019

Note payable

40,000

Cash

40,000

31 Dec 2019

Interest expenses

2,965

Discount on notes payable

2,965

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Question: (a) From what sources might a corporation obtain funds through long-term debt? (b) What is a bond indenture? What does it contain? (c) What is a mortgage?

Question: (Debt Securities) Presented below is an amortization schedule related to Spangler Company鈥檚 5-year, \(100,000

bond with a 7% interest rate and a 5% yield, purchased on December 31, 2015, for \)108,660.

Cash Interest Bond Premium Carrying Amount

Date Received Revenue Amortization of Bonds

12/31/15 \(108,660

12/31/16 \)7,000 \(5,433 \)1,567 107,093

12/31/17 7,000 5,354 1,646 105,447

12/31/18 7,000 5,272 1,728 103,719

12/31/19 7,000 5,186 1,814 101,905

12/31/20 7,000 5,095 1,905 100,000

The following schedule presents a comparison of the amortized cost and fair value of the bonds at year-end.

12/31/16 12/31/17 12/31/18 12/31/19 12/31/20

Amortized cost \(107,093 \)105,447 \(103,719 \)101,905 $100,000

Fair value 106,500 107,500 105,650 103,000 100,000

Instructions

(a) Prepare the journal entry to record the purchase of these bonds on December 31, 2015, assuming the bonds are classified

as held-to-maturity securities.

(b) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2016.

(c) Prepare the journal entry(ies) related to the held-to-maturity bonds for 2018.

(d) Prepare the journal entry(ies) to record the purchase of these bonds, assuming they are classified as available for-

sale.

(e) Prepare the journal entry(ies) related to the available-for-sale bonds for 2016.

(f) Prepare the journal entry(ies) related to the available-for-sale bonds for 2018.

How should discounts on bonds payable be reported on the financial statements? Premium on bonds payable?

In each of the following independent cases, the company closes its books on December 31.

1. Sanford Co. sells \(500,000 of 10% bonds on March 1, 2017. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2020. The bonds yield 12%. Give entries through December 31, 2018.

2. Titania Co. sells \)400,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021. The bonds yield 10%. On October 1, 2018, Titania buys back \(120,000 worth of bonds for \)126,000 (includes accrued interest). Give entries through December 1, 2019.

Instructions

For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)

Devers Corporation issued $400,000 of 6% bonds on May 1, 2017. The bonds were dated January 1, 2017, and mature January 1, 2020, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Devers鈥檚 journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
See all solutions

Recommended explanations on Business Studies Textbooks

Sales in Business

Read Explanation

Strategic Analysis

Read Explanation

Family Business

Read Explanation

Managers

Read Explanation

Managerial Economics

Read Explanation

Introduction to Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.