Question

In: Accounting

Cobalt Ceramics, Inc., acquired a manufacturing facility (building) from Nickel Construction Company. Nickel completed construction of...

Cobalt Ceramics, Inc., acquired a manufacturing facility (building) from Nickel Construction Company. Nickel completed construction of the facility on January 1, 2021. In payment for the $6 million lighthouse, Cobalt issued a five-year installment note to be paid in five equal payments at the end of each year. The payments include interest at the rate of 5.4%.

Instructions

  1. Prepare the journal entry for Cobalt’s purchase of the facility on January 1, 2021.
  2. Prepare the journal entry for the first installment payment on December 31, 2021.
  3. Prepare the journal entry for the second installment payment on December 31, 2022.
  4. What amount will Cobalt report as Notes Payable on its December 31, 2022 balance sheet?

Solutions

Expert Solution

Notes payable 60,00,000
Divide: Annuity PVF at 5.40% for 5 years 4.28202
Annual Instalment 1401207.84
Amort Chart
Date Payment Interest Principal Carrying
expense payment amount of notes
01.01.21 60,00,000
31.12.21 1401208 324000 1077208 49,22,792
31.12.22 1401208 265831 1135377 37,87,415
Journal entries
S.no. Accounts title and explanations Debit $ Credit $
01.01.21 Plant and equipment 60,00,000
    Notes payable 60,00,000
(for purchase of plant for notes)
31.12.21 Notes payable 10,77,208
Interest expense 3,24,000
    Cash 14,01,208
(for instalment paid)
31.12.22 Notes payable 11,35,377
Interest expense 2,65,831
    Cash 14,01,208
(for instalment paid)
Balance Sheet (31.12.22)
Notes payable 37,87,415

ekkarill92 answered 1 year ago
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