Problem 1 On January 2, 20x8, the Todd Company acquired a truck with a list pric

Question

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 five years. Payments are due on December 31 of every year. The interest rate charged is 10%.

b) Todd Company pays the $400,000 in three years. No interest is charged on the note.

c) Todd Company pays the $400,000 in three years. Interest of 3% is charged on the note payable on December 31 of every year.

d) Todd Company pays $80,000 on the principal at the end of every year, over 5 years. No interest is charged.

e) Todd Company has to make equal annual payments of principal and interest over five years. The interest rate charged is 4%.

Explanation / Answer

The Journal Entries given below situation wise. (all amount in $)

Entry in Todd company during the acquired Truck Rs. 4,00,000/- January 2, 2018 Truck Account Dr. 400000 To Truck Manufacturer 400000 Situation-1 December 31, 2018 Interest Dr. 40000 To Truck Manufacturer 40000 December 31, 2018 Turck Manufacturer Dr. 105519 To Bank/Cash 105519 December 31, 2019 Interest Dr. 33448 To Truck Manufacturer 33448 December 31, 2019 Turck Manufacturer Dr. 105519 To Bank/Cash 105519 December 31, 2020 Interest Dr. 26241 To Truck Manufacturer 26241 December 31, 2020 Turck Manufacturer Dr. 105519 To Bank/Cash 105519 December 31, 2021 Interest Dr. 18313 To Truck Manufacturer 18313 December 31, 2021 Turck Manufacturer Dr. 105519 To Bank/Cash 105519 December 31, 2022 Interest Dr. 9593 To Truck Manufacturer 9593 December 31, 2022 Turck Manufacturer Dr. 105519 To Bank/Cash 105519 Situation-2 December 31, 2018 Turck Manufacturer Dr. 133333.3 To Bank/Cash 133333.3 December 31, 2019 Turck Manufacturer Dr. 133333.3 To Bank/Cash 133333.3 December 31, 2020 Turck Manufacturer Dr. 133333.3 To Bank/Cash 133333.3 Situation-3 December 31, 2018 Interest Dr. 12000 To Truck Manufacturer 12000 (400000x3%x1) December 31, 2018 Turck Manufacturer Dr. 145333.3 To Bank/Cash 145333.3 December 31, 2019 Interest Dr. 8000 To Truck Manufacturer 8000 (400000-133333.30)x3%x1) December 31, 2019 Turck Manufacturer Dr. 108000 To Bank/Cash 108000 December 31, 2020 Interest Dr. 4000 To Truck Manufacturer 4000 (200000x10%x1) December 31, 2020 Turck Manufacturer Dr. 137333.3 To Bank/Cash 137333.3 Situation-4 December 31, 2018 Turck Manufacturer Dr. 80000 To Bank/Cash 80000 December 31, 2019 Turck Manufacturer Dr. 80000 To Bank/Cash 80000 December 31, 2020 Turck Manufacturer Dr. 80000 To Bank/Cash 80000 December 31, 2021 Turck Manufacturer Dr. 80000 To Bank/Cash 80000 December 31, 2021 Turck Manufacturer Dr. 80000 To Bank/Cash 80000 Situation-5 December 31, 2018 Interest Dr. 16000 To Truck Manufacturer 16000 December 31, 2018 Turck Manufacturer Dr. 89851 To Bank/Cash 89851 December 31, 2019 Interest Dr. 13046 To Truck Manufacturer 13046 December 31, 2019 Turck Manufacturer Dr. 89851 To Bank/Cash 89851 December 31, 2020 Interest Dr. 9974 To Truck Manufacturer 9974 December 31, 2020 Turck Manufacturer Dr. 89851 To Bank/Cash 89851 December 31, 2021 Interest Dr. 6779 To Truck Manufacturer 6779 December 31, 2021 Turck Manufacturer Dr. 89851 To Bank/Cash 89851 December 31, 2022 Interest Dr. 3456 To Truck Manufacturer 3456 December 31, 2022 Turck Manufacturer Dr. 89851 To Bank/Cash 89851

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