Question

In: Accounting

Bridgeport Corporation purchased a computer on December 31, 2016, for $113,400, paying $32,400 down and agreeing...

Bridgeport Corporation purchased a computer on December 31, 2016, for $113,400, paying $32,400 down and agreeing to pay the balance on five equal installments of $16,200 payable each December 31 beginning in 2017. An assumed interest rate of 8% is implicit in the purchase price. Prepare the journal entry at the data of purchase. Prepare the journal entry at December 31, 2017, to record the payment and interest (effective-interest method employed). Prepare the journal entry at December 31, 2018, to record the payment and interest (effective-interest method employed).

Solutions

Expert Solution

Date Accounts title Debit Credit
31-Dec-16 Equipment [or Machine] $113,400
   Cash $32,400
   Notes Payable $81,000
(to record purchase)
31-Dec-17 Interest Expense $6,480
Notes Payable $9,720
   Cash $16,200
(first installment paid)
31-Dec-18 Interest Expense $5,702
Notes Payable $10,498
   Cash $16,200
(second installment paid)


--Working

A Equipment cost $113,400
B Cash paid $32,400
C = A - B Notes Payable $81,000
D = C x 8% Dec 31, 2017 Interest expense $6,480
E Installment amount $16,200
F = E - D Principal paid $9,720
G = C - F Balance of Notes Payable on 1 jan 2018 $71,280
H = G x 8% Dec 31, 2018 Interest expense $5,702
I Installment amount $16,200
J = I - H Principal paid $10,498

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