Question

On December 31, 2020, Nash Company acquired a computer from Plato Corporation by issuing a $609,000 zero-interest-bearing note, payable in full on December 31, 2024. Nash Company’s credit rating permits it to borrow funds from its several lines of credit at 12%. The computer is expected to have a 5-year life and a $63,000 salvage value.

Prepare the journal entry for the purchase on December 31, 2020. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2020

Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2021. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2021
	(To record the depreciation.)
December 31, 2021
	(To amortize the discount.)

Schedule of Note Discount Amortization
Date		Debit, Interest Expense Credit, Discount on Notes Payable		Carrying Amount of Note
12/31/20		$		$
12/31/21
12/31/22
12/31/23
12/31/24

Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2022. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2022
	(To record the depreciation.)
December 31, 2022
	(To amortize the discount.)

Answer 1

1) The journal entry for the purchase of computer on December 31, 2020

Date	Account Titles and Explanation	Debit	Credit
31-Dec-20	Computer a/c	$387,032
	Discount on notes payable	$221,968
	Notes Payable		$609,000
	(acquired a computer by issuing a zero-interest-bearing note)
	Note : pv factor @ 12% for 4th year = 0.63552
	PV of notes payable = $609,000 * 0.63552= $387,032
	Doscount = $609,000 - $387,032 = $221,968

2)  Adjusting entries relative to depreciation (use straight-line) and amortization on December 31, 2021

Date	Account Titles and Explanation	Debit	Credit
31-Dec-21	Depreciation Expense a/c	$64,806
	Accumulated Depreciation		$64,806
	( Adjustment of depreciation )
	Note : Depreciation = ( $387,032 - $63,000 )/5 = $64,806
31-Dec-21	Interest Expense a/c	$46,444
	Discount on notes payable		$46,444
	( Discount on notes payable amortized)
	Interest Expense = $387,032 * 12% = 46,444

3) Schedule of Note Discount Amortization

Date	Debit, Interest Expense Credit, Discount on Notes Payable	Carrying Amount
12-Dec-20		$387,032
12-Dec-21	$46,444	$433,476
12-Dec-22	$52,017	$485,493
12-Dec-23	$58,259	$543,752
12-Dec-24	$65,248	$609,000

Note:
Interest Expense = Previous Year Carrying Amount * 12%
Carrying Amount = Previous year carrying amount + Interest Expense
In 2024 Interest is $65,250 actually. But we need only $65,248 to complete $609,000

_____________________________________________________________________________________

4) Adjusting entries relative to depreciation and amortization on December 31, 2022

Date	Account Titles and Explanation	Debit	Credit
31-Dec-22	Depreciation Expense a/c	$64,806
	Accumulated Depreciation		$64,806
	( Adjustment of depreciation )
	Note : Depreciation = ( $387,032 - $63,000 )/5 = $64,806
31-Dec-22	Interest Expense a/c	$52,017
	Discount on notes payable		$52,017
	( Discount on notes payable amortized)