The interest rate is 6% and payment terms are $40,000 plus interest due on March 31, 2021 and the balance due, plus interest, on March 31, 2022. Prepare journal entries required on December 31, 2020, March 31, 2021, December 31, 2021 and March 31, 2022.

ABC Moving and Storage acquired a new truck for $100,000, paying $20,000 cash and signing a promissory note for the balance. According to the bill of sale, ABC also paid cash for sales tax of 8%, plus registration, tags and delivery fees of $400. The new truck is estimated to have a 5-year economic life and a residual (salvage) value of $8,400. ABC uses straight-line depreciation. Due to delays, the truck was not placed in service until April 1, 2020. ABC has a December 31 fiscal year.

This is the complete question,

Explanation:

Account Debit Credit

Dec 31. 2020 Depreciation expense $15,000

Accumulated depreciation $ 15,000

[Depreciation =

$100,000/5 * 9/12]

Dec 31. 2020 Interest expense $3,600

Interest payable $ 3,600

[Interest =

$80,000 * 6% * 9/12]

March 31. 2021 Interest payable $3,600

Interest expense $1,200

Note payable $40,000

Cash $ 44,800

[Interest =

$80,000 * 6% * 3/12]

Dec 31. 2021 Depreciation expense $20,000

Accumulated depreciation $ 20,000

[Depreciation =

$100,000/5]

Dec 31. 2021 Interest expense $ 1,800

Interest payable $ 1,800

[Interest =

$40,000 * 6% * 9/12]

March 31. 2022 Interest payable $ 1,800

Interest expense $ 600

Note payable $ 40,000

Cash $42,400

[Interest =

$40,000 * 6% * 3/12]