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On October 30, 2016, Sanchez Company acquired a piece of machinery and signed a 12-month note...

On October 30, 2016, Sanchez Company acquired a piece of machinery and signed a 12-month note for $24,000. The face value of the note includes the price of the machinery and interest. The note is to be paid in four $6,000 quarterly installments. The value of the machinery is the present value of the four quarterly payments discounted at an annual interest rate of 16%. Required: 1. Prepare all the journal entries required to record the preceding information including the year-end adjusting entry and any payments. Present value techniques should be used. 2. Show how the preceding items would be reported on the December 31, 2016, balance sheet.

Solutions

Expert Solution

Journal entries
Date Particulars Debit credit
30-Oct machinery 21779
discount on notes payable 2221
notes payable 24000
31-Dec interest exp 581
discount on notes payable 581
31-Jan interest exp 290
notes payable 6000
discount on notes payable 290
cash 6000
30-Apr interest exp 666
notes payable 6000
discount on notes payable 666
cash 6000
31-Jul interest exp 453
notes payable 6000
discount on notes payable 453
cash 6000
30-Oct interest exp 231
notes payable 6000
discount on notes payable 231
cash 6000
calculation of interest & obligation
Date payment 4% interest exp quatrly red of obligation net
30-Oct 21779
31-Jan 6000 871 5129 16650
30-Apr 6000 666 5334 11316
31-Jul 6000 453 5547 5769
30-Oct 6000 231 5769
24000 2221 21779
Balance sheet
PPE machinery 21779
notes payable 24000
discount on notes payable 1640 22360

ekkarill92 answered 2 years ago
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