In: Accounting
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 | |||
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 |