Question

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).

Answer 1

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