PART B (Schedule 2): On January 1, 2013, Border Company purchased a truck that c

Question

PART B (Schedule 2): On January 1, 2013, Border Company purchased a truck that cost $17,000. The company signed a $17,000 notes payable that specified four equal annual payments (at each year-end), each of which includes a repayment of the principal and interest on the unpaid balance at 10% per annum. The company estimates the useful life of 10 years with zero residual value for the truck. Round up to the nearest dollar.

1. Calculate the amount of each equal payment (round to the nearest dollar)

2. Prepare the journal entry to record the purchase of the truck.

3. Prepare the journal entry by the end of 2013.

4. Prepare the journal entry by the end of 2014.

5. What is the beginning balance of total notes payable (including both the Long-term notes payable and the current portion of long-term notes payable) on January 1, 2015?

6. On January 1, 2015 (not January 1, 2013), what is the NPV of the rest two installments under the 10% annual interest rate?

7. Will the interest paid with the first annual payment be more or less than the interest paid with the second annual payment? Explain your answer.

Explanation / Answer

Req 1. Purchase cost of truck: 17000 Annuity factor for 4 years at 10% 3.1699 Annual payment 5363 Req 2: Truck equipment Dr. 17000      Notes payable 17000 Req 3: Depreciation expense- Truck dr. 4250     Accumulated Depreciation- Truck 4250 Interest expense Dr. (17000*10%) 1700 Notes payable Dr. 3663      Cash acsount 5363 Req 4: Depreciation expense- Truck dr. 4250     Accumulated Depreciation- Truck 4250 Interest expense Dr. (17000-3663*10%) 1334 Notes payable Dr. 4029      Cash acsount 5363 Req 5: balance on Notes payable in jan2015: Notes payable 17000 Less: paid in 2013 3663 Lss: Paid in 2014 4029 balance on jan1 9308 Req 6: NPV of next two instalments: Annuity factor for 2 years 1.7355 Annual Instalment 5363 Present value of Instalment 9307 Req 7: the Interest paymen in first instalment is more than second. This is because of the reason that the in first instalment interest is calaculated on initial balance. On second instalment, interest is computed on reduced balance of note paybale after first instalment.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.