Question

On December 31, 2017, Sheridan Company acquired a computer from Plato Corporation by issuing a $595,000 zero-interest-bearing note, payable in full on December 31, 2021. Sheridan Company’s credit rating permits it to borrow funds from its several lines of credit at 12%. The computer is expected to have a 5-year life and a $75,000 salvage value.

Prepare the journal entry for the purchase on December 31, 2017. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date
Account Titles and Explanation
Debit
Credit
December 31, 2017

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Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2018. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date
Account Titles and Explanation
Debit
Credit
December 31, 2018
(To record the depreciation.)
December 31, 2018
(To amortize the discount.)

Schedule of Note Discount Amortization
Date
Debit, Interest Expense Credit,
Discount on Notes Payable
Carrying Amount
of Note
12/31/17 $
$
12/31/18
12/31/19
12/31/20
12/31/21

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Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2019. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date
Account Titles and Explanation
Debit
Credit
December 31, 2019
(To record the depreciation.)
December 31, 2019
(To amortize the discount.)

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Answer 1

present worth of zero interest bearing note = Face value *PVF12%,4

                 = 595000* .63552

                 = $ 378134.40   [ROUNDED TO 378134]

Discount on note = 595000-378134 = 216866

Date	Account	Debit	credit
Dec 31 2017	Computer	378134
	Discount on note payable	216866
	Note payable		595000
December 31 2018	Depreciation expense	60627
	Accumulated depreciation-computer		60627
	[depreciation receorded]
31 dec 2018	Interest expense	45376
	Discount on note payable [378134*.12]		45376
	[being discount amortised ,carrying value of note 378134 *rate 12%]
31 dec 2019	depreciation expense	60627
	Accumulated depreciation-computer		60627
31 dec 2019	Interest expense	50821
	Discount on note payable [423510*12%]		50821

Depreciation =[cost-salvage ]/useful life

       =[378134-75000]/5

      = 60626.8   [rounded to 60627]

**carrying value at dec 31 2018 = 378134+45376 discount amortised in 2018 = 423510