Question

PartA： Jan 1^st, 2020: Tony Inc. buys a machine from Avengers Inc. and will make 3 equal payments of 200,000 over the next 18 months (payments on June 30, 2020; Dec 31, 2020; and June 30, 2021). The interest rate on this annuity is 14%. Record all the journal entries from Jan 1^st 2020 until the expiration of the annuity. (4 points) Assume the machine does not depreciate.

Part B: Create the balance sheet as of December 31^st, 2020 along with the income statement and cash flow statement for the time period of Jan 1^st, 2020 to Dec 31^st,2020 (6 points) (There might have a $1 rounding issue

Answer 1

Calculation of Present Value:
Payments	Dis. Factor @ 7%	PV
200000	0.9346	186916
200000	0.8734	174688
200000	0.8163	163260
		524863
Repayment Schedule:
Date	Opening	Interest @ 14% p.a.	Principal Payment	Instalment	Closing
30-06-2020	524863	36740	163260	200000	361604
31-12-2020	361604	25312	174688	200000	186916
30-06-2021	186916	13084	186916	200000	0
Journal Entries:
Date	Account	Debit	Credit
01-01-2020	Machine Dr	524863
	To Loan from Avengers Inc.		524863
30-06-2020	Loan from Avengers Inc. Dr	163260
	Interest Expense Dr.	36740
	To Cash		200000
31-12-2020	Loan from Avengers Inc. Dr	174688
	Interest Expense Dr.	25312
	To Cash		200000
30-06-2021	Loan from Avengers Inc. Dr	186916
	Interest Expense Dr.	13084
	To Cash		200000

Income Statement for Jan 1st, 2020 to Dec 31st,2020
Particulars	Amount ($)
Interest Expense	62053	=36740+25312
Balance Sheet as on December 31st, 2020
Assets	Amount ($)
Machine	524863
Cash	-400000
Total	124863
Equity & Liabilities	Amount ($)
Reserves & Surplus	-62053
Loan from Avengers Inc.	186916
Total	124863
Cash Flow Statement for Jan 1st, 2020 to Dec 31st,2020
Cash Flow from Investing Activities
Payment of installment for machine	-400000