On December 31, 2010, Faital Company acquired a computer from Plato Corporation by issuing a $600,000 zero-interest-bearing note, payable in full on December 31, 2014. Faital Company's credit rating permits it to borrow funds from its several lines of credit at 10%. The computer is expected to have a 5-year life and a $70,000 salvage value.

(a) Prepare the journal entry for the purchase on December 31, 2010.

(b) Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2011.

(c) Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2012.

Question

Kerr

Business

26 April, 14:02

On December 31, 2010, Faital Company acquired a computer from Plato Corporation by issuing a $600,000 zero-interest-bearing note, payable in full on December 31, 2014. Faital Company's credit rating permits it to borrow funds from its several lines of credit at 10%. The computer is expected to have a 5-year life and a $70,000 salvage value.

(a) Prepare the journal entry for the purchase on December 31, 2010.

(b) Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2011.

(c) Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2012.

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Answers (1)

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Rosebud · Answer 1

Journal Entry to record the transaction

Dr. Cr.

(a) Dec 31, 2010

Computer $600,000

Note payable $600,000

(b) Dec 31, 2011

Depreciation Expense $106,000

Accumulated Depreciation $106,000

(b) Dec 31, 2012

Depreciation Expense $106,000

Accumulated Depreciation $106,000

Explanation:

Depreciation = ($600,000 - $70,000) / 5 = $106,000