On January 1, 2013, Picard Inc. purchased a new piece of equipment from LaForge Engineering to expand

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On January 1, 2013, Picard Inc. purchased a new piece of equipment from LaForge Engineering to expand its production facilities. The equipment was purchased at a cost of $800,000. Picard financed the purchase with an $800,000 mortgage to be repaid in annual payments over five years at a rate of 10%. The mortgage was arranged through Pulaski Bank. The annual payments of $211,038 are to be made on December 31 of each year.
Instructions:
1. Prepare a mortgage amortization schedule for the 5-year life of the mortgage.
2. Assuming the equipment is expected to last for five years (with zero salvage value), determine the net amount at which the equipment will be reported on the balance sheet at the end of each year for its 5-year life using straight-line depreciation.
3. Compare the liability amount to be disclosed on the balance sheet at the end of each year for the 5-year mortgage term with the asset amount to be disclosed at the end of the same years. Identify the primary reasons for the differences each year.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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Intermediate Accounting

ISBN: 978-0538479738

18th edition

Authors: Earl K. Stice, James D. Stice

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