Question

In: Accounting

Teal Corporation purchased a computer on December 31, 2019, for $132,300, paying $37,800 down and agreeing...

Teal Corporation purchased a computer on December 31, 2019, for $132,300, paying $37,800 down and agreeing to pay the balance in five equal installments of $18,900 payable each December 31 beginning in 2020. An assumed interest rate of 9% is implicit in the purchase price.New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is partially correct.

Prepare the journal entry at the date of purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2019

Prepare the journal entry at December 31, 2020, to record the payment and interest (effective-interest method employed). (Round answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2020

Prepare the journal entry at December 31, 2021, to record the payment and interest (effective-interest method employed). (Round answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2021

Solutions

Expert Solution

Annual payment = (Principal * Rate of interest * (1+Rate on interest)^12)/((1+Rate on interest)^12)-1)
= ((1,32,300 - 37,800- Interest) * .09 * 1.09^5)/(1.09^5 - 1)
= ((94500 - Interest) * .09 * 1.538624) / (1.538624 - 1)
= ((94500 - Interest) *.138476) / 0.538624
           18,900        = ((94500 - Interest) *.138476) / 0.538624
           73,514.5       = (94500 - Interest)
           Interest       = (94500 - 73,514.5) = 20985.5
           Principal       = 73,514.5
Payment Date Lease Payment Effective Interest Decrease in Balance Lease Balance
Purchase          37,800.00       73,514.50
31-12-2020          18,900.00            6,616.31    12,283.70       61,230.81
31-12-2021          18,900.00            5,510.77    13,389.23       47,841.58
31-12-2022          18,900.00            4,305.74    14,594.26       33,247.32
31-12-2023          18,900.00            2,992.26    15,907.74       17,339.58
31-12-2024          18,900.00            1,560.42    17,339.58                  0.00
Date Journal Entry Debit Credit
01-01-2021 Gross Asset (Computer) 1,11,314.50
Lease Liability      73,514.50
Cash      37,800.00
31-12-2020 Lease Rental Expense (Reduction of Lease Liability)       12,283.70
Interest Expense         6,616.30
Cash (Paid to Lessor)      18,900.00
31-12-2021 Lease Rental Expense (Reduction of Lease Liability)       13,389.23
Interest Expense         5,510.77
Cash (Paid to Lessor)      18,900.00

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