Question

LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2018. In payment for the $25.7 million purchase, LCD issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required: 1. & 2. Prepare the journal entry for LCD’s purchase of the components on November 1, 2018 and the first installment payment on November 30, 2018.

- Record the purchase of the components.

- Record the first installment payment.

3. What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2018?

- 2018 Interest Expense: ________

Answer 1

LCD
Q1
Sr.No.	Particulars	Amount
1	Cash Price	25,700,000.00
2	Annual Interest Rate	12%
3	Monthly Interest Rate	1%
4	Installment Payment Frequency	Monthly - at month end
5	PVAF @ 1% for 12 periods	11.2551
6	Monthly EMI (1/5)	2,283,409.30
Loan Amortization Schedule:
Month	Particulars	Opening Balance	Interest	Installment	Closing Balance
0	Purchase Price	-	-	-	25,700,000.00
1	Monthly Installment	25,700,000	257,000	2,283,409	23,673,591
2	Monthly Installment	23,673,591	236,736	2,283,409	21,626,917
3	Monthly Installment	21,626,917	216,269	2,283,409	19,559,777
4	Monthly Installment	19,559,777	195,598	2,283,409	17,471,966
5	Monthly Installment	17,471,966	174,720	2,283,409	15,363,276
6	Monthly Installment	15,363,276	153,633	2,283,409	13,233,499
7	Monthly Installment	13,233,499	132,335	2,283,409	11,082,425
8	Monthly Installment	11,082,425	110,824	2,283,409	8,909,840
9	Monthly Installment	8,909,840	89,098	2,283,409	6,715,529
10	Monthly Installment	6,715,529	67,155	2,283,409	4,499,275
11	Monthly Installment	4,499,275	44,993	2,283,409	2,260,859
12	Monthly Installment	2,260,859	22,551	2,283,409	(0)
Date	Account Titles	Debit	Credit
01.11.2018	Component	25,700,000.00
	Entel Corporation		25,700,000.00
	To record purchase of component on installment system
30.11.2018	Entel Corporation A/c	2,026,409
	Interest Expenses A/c	257,000
	Bank A/c		2,283,409
	To record first installment payment
30.11.2018	Entel Corporation A/c	2,046,673
	Interest Expenses A/c	236,736
	Bank A/c		2,283,409
	To record second installment payment
	Interest Expenses to be reported in 2018 Financial Statement = 236736+257000
	-2018 Interest Expenses	493,736.00