Problem 1 On January 2, 20x8, the Todd Company acquired a truck with a list price...

Problem 1

On January 2, 20x8, the Todd Company acquired a truck with a list price of $400,000. The Todd Company's incremental borrowing rate is 8% (imputed rate). Assume that the

truck manufacturer is offering Todd the following terms (each situation is independent). For each of the terms, prepare the journal entries for the life of the note. Assume a December 31 year end.

Todd company is a publicly accountable company.

a) Todd Company has to make equal annual payments of principal and interest over five years. Payments are due on December 31 of every year. The interest rate charged is 10%.

b) Todd Company pays the $400,000 in three years. No interest is charged on the note.

c) Todd Company pays the $400,000 in three years. Interest of 3% is charged on the note payable on December 31 of every year.

d) Todd Company pays $80,000 on the principal at the end of every year, over 5 years. No interest is charged.

e) Todd Company has to make equal annual payments of principal and interest over five years. The interest rate charged is 4%.

Solutions

Expert Solution

The Journal Entries given below situation wise. (all amount in $)

Entry in Todd company during the acquired Truck Rs. 4,00,000/-

January 2, 2018	Truck Account Dr.	400000
	To Truck Manufacturer		400000


Situation-1
December 31, 2018	Interest Dr.	40000
	To Truck Manufacturer		40000


December 31, 2018	Turck Manufacturer Dr.	105519
	To Bank/Cash		105519

December 31, 2019	Interest Dr.	33448
	To Truck Manufacturer		33448


December 31, 2019	Turck Manufacturer Dr.	105519
	To Bank/Cash		105519

December 31, 2020	Interest Dr.	26241
	To Truck Manufacturer		26241


December 31, 2020	Turck Manufacturer Dr.	105519
	To Bank/Cash		105519

December 31, 2021	Interest Dr.	18313
	To Truck Manufacturer		18313


December 31, 2021	Turck Manufacturer Dr.	105519
	To Bank/Cash		105519

December 31, 2022	Interest Dr.	9593
	To Truck Manufacturer		9593


December 31, 2022	Turck Manufacturer Dr.	105519
	To Bank/Cash		105519


Situation-2

December 31, 2018	Turck Manufacturer Dr.	133333.3
	To Bank/Cash		133333.3

December 31, 2019	Turck Manufacturer Dr.	133333.3
	To Bank/Cash		133333.3

December 31, 2020	Turck Manufacturer Dr.	133333.3
	To Bank/Cash		133333.3

Situation-3

December 31, 2018	Interest Dr.	12000
	To Truck Manufacturer		12000
	(400000x3%x1)

December 31, 2018	Turck Manufacturer Dr.	145333.3
	To Bank/Cash		145333.3

December 31, 2019	Interest Dr.	8000
	To Truck Manufacturer		8000
	(400000-133333.30)x3%x1)

December 31, 2019	Turck Manufacturer Dr.	108000
	To Bank/Cash		108000

December 31, 2020	Interest Dr.	4000
	To Truck Manufacturer		4000
	(200000x10%x1)

December 31, 2020	Turck Manufacturer Dr.	137333.3
	To Bank/Cash		137333.3


Situation-4


December 31, 2018	Turck Manufacturer Dr.	80000
	To Bank/Cash		80000

December 31, 2019	Turck Manufacturer Dr.	80000
	To Bank/Cash		80000

December 31, 2020	Turck Manufacturer Dr.	80000
	To Bank/Cash		80000

December 31, 2021	Turck Manufacturer Dr.	80000
	To Bank/Cash		80000

December 31, 2021	Turck Manufacturer Dr.	80000
	To Bank/Cash		80000

Situation-5

December 31, 2018	Interest Dr.	16000
	To Truck Manufacturer		16000


December 31, 2018	Turck Manufacturer Dr.	89851
	To Bank/Cash		89851

December 31, 2019	Interest Dr.	13046
	To Truck Manufacturer		13046


December 31, 2019	Turck Manufacturer Dr.	89851
	To Bank/Cash		89851

December 31, 2020	Interest Dr.	9974
	To Truck Manufacturer		9974


December 31, 2020	Turck Manufacturer Dr.	89851
	To Bank/Cash		89851

December 31, 2021	Interest Dr.	6779
	To Truck Manufacturer		6779


December 31, 2021	Turck Manufacturer Dr.	89851
	To Bank/Cash		89851

December 31, 2022	Interest Dr.	3456
	To Truck Manufacturer		3456


December 31, 2022	Turck Manufacturer Dr.	89851
	To Bank/Cash		89851

ekkarill92 answered 7 months ago

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