SPROTT SCHOOL OF BUSINESS BUSI 2001-Intermediate Accounting Assignment 2-Notes R
ID: 2341520 • Letter: S
Question
SPROTT SCHOOL OF BUSINESS BUSI 2001-Intermediate Accounting Assignment 2-Notes Receivable&Inventory Your assignment submission must be typed up in either Word or Excel and uploaded (one file only) to the assignment dropbox before midnight September 30, 2018 Problem 1 On January 2,20x8, the Todd Company acquired a truck with a list price of $400,000. The Todd Company's incremental borrowing rate is 8% (imputed rate). Assume that the truck manufacturer is offering Todd the following terms (each situation is independent For each of the terms, prepare the journal entries for the life of the note. Assume a December 31 year end. Todd company is a publicly accountable company a) Todd Company has to make equal annual payments of principal and interest over b) Todd Company pays the $400,000 in three years. No interest is charged on the c) Todd Company pays the $400,000 in three years. Interest of 3% is charged on the d Todd Company pays $80,000 on the principal at the end of every year, over 5 e Todd Company has to make equal annual payments of principal and interest over five years. Payments are due on December 31 of every year. The interest rate charged is 10% note. note payable on December 31 of every year. years. No interest is charged. five years. The interest rate charged is 4%Explanation / Answer
Problem 1 a EMI (Use Excel formula PMT ) ($105,518.99) or PV of 1 for 10%, for 5 year from annuity table = 3.7908 EMI = Loan Amount = Payments / Annuity Present Value Factor EMI = 1,055,186.24 EMI Table Balance outstanding Interest EMI Principal 1 400,000.00 40,000.00 105,518.99 65,518.99 2 334,481.01 33,448.10 105,519.00 72,070.90 3 262,410.11 26,241.01 105,519.00 79,277.99 4 183,132.12 18,313.21 105,519.00 87,205.79 5 95,926.33 9,592.63 105,519.00 95,926.33 127,594.96 400,000.00 Journal Entries 2nd Jan 2x18 Truck 400,000.00 To Notes Payable 400,000.00 (Being Purchase of Truck on Loan for 10% interest) 31 Dec 2x18 Notes Payable 65,518.99 Interest Expense 40,000.00 To Cash 105,518.99 (Being repayment of 1st installment of Loan & interest) 31 Dec 2x19 Notes Payable 72,070.90 Interest Expense 33,448.10 To Cash 105,518.99 (Being repayment of 2nd installment of loan & Interest) 31 Dec 2x20 Notes Payable 79,277.99 Interest Expense 26,241.01 To Cash 105,518.99 (Being repayment of the 3rd installment of loan and Interest) 31 Dec 2x21 Notes Payable 87,205.79 Interest Expense 18,313.21 To Cash 105,518.99 (Being repayment of 4th installment of loan and interest) 31 Dec 2x22 Notes Payable 95,926.33 Interest Expense 9,592.63 To Cash 105,518.99 (Being repayment of the 5th installment of loan & interest) Problem 1 b Present Value of 8% 0.7938 (incremental borrowing cost) 2nd Jan 2x18 Truck 317,520.00 Discount on notes payable 82,480.00 To Notes Payable 400,000.00 (Being Purchase of Truck on Loan) 31 Dec 2x18 Notes Payable 133,333.33 To Cash 133,333.33 (Being repayment of 1st installment of Loan ) Interest Expense 27,493.33 Discount on notes payable 27,493.33 (Discount amortized over 3 years) 31 Dec 2x19 Notes Payable 133,333.33 To Cash 133,333.33 (Being repayment of 1st installment of Loan & interest) Interest Expense 27,493.33 Discount on notes payable 27,493.33 (Discount amortized over 3 years) 31 Dec 2x20 Notes Payable 133,333.33 To Cash 133,333.33 (Being repayment of 1st installment of Loan & interest) Interest Expense 27,493.33 Discount on notes payable 27,493.33 (Discount amortized over 3 years)
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