Example #1, On January 1, 2019 a company leased an automobile by signing a lease with...
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Example #1, On January 1, 2019 a company leased an automobile by signing a lease with a market (present value) of $100,000, with 4% implicit interest rate. The lease is to be paid in three equal payments of $36,034.85 at the end of each year beginning December 31, 2016. Below is the loan reduction schedule (please be sure you understand it)!!!!!! Principal Balance Date Beg. Balance interest expense 2019 100,000 $4,000 2020 $67,965.15 $2,718.61 2021 $34,648.91 $1,385.96 Cash Payment 36,034.85 36,034.85 36,034.85 Reduction in Principal $32,034.85 $33,316.24 $34,648.89 Financing Lease - treat like purchase of asset and note pavable a) PREPARE THE JOURNAL ENTRIES FOR 2019: Date Account Name Jan. 01, 2019 Equipment Notes Payable (Record purchase of automobile) Dec. 31, 2019 Interest Expense Notes Payable Cash (Record installment payment) b) PREPARE THE JOURNAL ENTRIES FOR 2020: Date Account Name Dec. 31, 2020 Interest Expense Notes Payable Cash (Record installment payment) c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Account Name Dec. 31, 2021 Interest Expense Notes Payable Cash (Record installment payment) $67,965.15 $34,648.91 $0.00 Debit $100,000 Credit $100,000 $4,000 $32,034.85 $36,034.85 Debit $2,718.60 $33,316.25 Credit $36,034.85 Debit $1,385.95 $34,648.90 Credit $36,034.85 Example #2, On January 1, 2019 a company purchases an automobile for $100,000 by signing a note for the $100,000, with 4% interest rate. The note is to be paid in three equal payments of $36,034.85 at the end of each year beginning December 31, 2019. Below is the loan reduction schedule (please be sure you understand it)!!!!!! (100,000 * 4% = 4,000) 67,965.15) (36,034.85-4,000 = 32,034.85) (100,000 - 32,034.85 = Date Beg. Balance 2019 $100,000 Interest expense $4,000 Cash Payment Reduction in Principal 36,034.85 $32,034.85 Principal Balance $67,965.15 $67,965.15 $2,718.61 2020 36,034.85 $33,316.24 $34,648.91 2021 $34,648.91 $1,385.96 36,034.85 $34,648.89 $0.00 a) PREPARE THE JOURNAL ENTRIES FOR 2019: Date Jan. 01, 2019 Account Name Equipment Notes Payable (Record purchase of automobile) Dec. 31, 2019 Interest Expense Notes Payable Cash (Record installment payment) b) PREPARE THE JOURNAL ENTRIES FOR 2020: Date Account Name Dec. 31, 2020 Interest Expense Notes Payable Cash (Record installment payment) Debit Credit $100,000 $100,000 $4,000 $32,034.85 $36,034.85 Debit $2,718.60 $33,316.25 Credit $36,034.85 Account Name c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Dec. 31, 2021 Interest Expense Debit $1,385.95 Credit Notes Payable $34,648.90 Cash $36,034.85 (Record installment payment) Example #3, On January 1, 2019 a company issues 100 bonds, each for $1,000, for par, as the interest rate on the bond (stated/coupon rate) is 4% and the market rate is also 4%. They then used this cash to purchase an automobile for $100,000 cash. The bond is to be paid in at the end of THREE years (December 31, 2021). a) PREPARE THE JOURNAL ENTRIES FOR 2019: Date Account Name Jan. 01, 2019 Cash Bonds Payable (Record issues of bonds) Dec. 31, 2019 Interest Expense Cash b) Date (Record market rate) PREPARE THE JOURNAL ENTRIES FOR 2020: Dec. 31, 2020 Account Name Interest Expense Cash (Record market rate) c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Account Name Dec. 31, 2021 Bonds Payable Interest Expense Cash (Record payment) Debit Credit $100,000 $100,000 $4,000 $4,000 Debit Credit $4,000 $4,000 Debit $100,000 Credit $4,000 $104,000 Example #4, On January 1, 2019 a company issues 100 bonds, each for $1,000, for a discount, as the interest rate on the bond (stated/coupon rate) is 3% and the market rate is 4%. They then used this cash to purchase an automobile for $100,000 cash. The bond is to be paid in at the end of THREE years (December 31, 2021). Calculate the cash received from issuing bond: Present value of maturity payment ($100,000* $88,900 Present value of interest payment ($100,000*.03=$3,000) $8,324.91 Present value of cash payments a) PREPARE THE JOURNAL ENTRIES FOR 2019: Date $97,224.91 Account Name Jan. 01, 2019 Cash Debit $97,224.91 Credit Discount on Bonds Payable Bonds Payable $2,775.09 $100,000 Dec. 31, 2019 Interest Expense $3,889 Discount on Bonds Payable Cash $889 $3,000 (Discount balance: 2,775.09-889.00 1,886.09) b) PREPARE THE JOURNAL ENTRIES FOR 2020: Date Dec. 31, 2020 Account Name Interest Expense Discount on Bonds Payable Cash (Discount balance: 1,886.09-924.56-961.53) c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Dec. 31, 2021 Account Name Interest Expense Discount on Bonds Payable Cash (Discount balance is now zero) Debit $3,924.56 Credit $924.56 $3,000 Debit $3,961.53 Credit $961.53 $3,000 Example #5, On January 1, 2019 a company issues 100 bonds, each for $1,000, for a premium, as the interest rate on the bond (stated/coupon rate) is 5% and the market rate is 4%. They then used this cash to purchase an automobile for $100,000 cash. The bond is to be paid in at the end of THREE years (December 31, 2021). Calculate the cash received from issuing bond: Present value of maturity payment $100,000 $ 88.899.64 Present value of interest payment ($100,000*.05-$5,000) $ 13.875.46 Present value of cash payments a) PREPARE THE JOURNAL ENTRIES FOR 2019: $102,775.09 Date Account Name Debit Credit Jan. 01, 2019 Cash $102,775.09 Bonds Payable $100,000 Premium on Bond Payable $2,775.09 Dec. 31, 2019 Interest Expense Premium on Bonds Payable Cash $4,111 $889 $5,000 (Premium balance: 2,775.09-889.00=1,886.09) b) PREPARE THE JOURNAL ENTRIES FOR 2020: Date Account Name Dec. 31, 2020 Interest Expense Premium on Bond Payable Cash (Premium balance: 1,886.09-924.56-961.53) c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Account Name Dec. 31, 2021 Interest Expense Premium on Bonds Payable Cash Dec. 31, 2021 Bonds Payable Cash (Premium balance is now zero) Debit $4,075.44 $924.56 Credit $5,000 Debit $4,038.47 Credit $961.53 $5,000 $100,000 $100,000 Fill in the amounts below based on the 5 Examples above: Expenses on Income Statement Financing lease (Ex 1) Installment note (Ex 2) Bond at par (Ex 3) Bond at Bond at Premium Discount (Ex 4) (Ex 5) YEAR 1 Depreciation/Amort Interest TOTAL YEAR 2 Depreciation/Amert, Interest TOTAL YEAR 3 Depreciation/Amort. Interest TOTAL Total in 3 years Cash OUTFLOW YEAR 1 YEAR 2 YEAR 3 TOTAL Balance Sheet effect YEAR 1 ASSETS Automobile Less: accumulated depreciation Net Book Value LIABILITIES balance YEAR 2 ASSETS Automobile Less: accumulated depreciation Net Book Value LIABILITIES balance Example #1, On January 1, 2019 a company leased an automobile by signing a lease with a market (present value) of $100,000, with 4% implicit interest rate. The lease is to be paid in three equal payments of $36,034.85 at the end of each year beginning December 31, 2016. Below is the loan reduction schedule (please be sure you understand it)!!!!!! Principal Balance Date Beg. Balance interest expense 2019 100,000 $4,000 2020 $67,965.15 $2,718.61 2021 $34,648.91 $1,385.96 Cash Payment 36,034.85 36,034.85 36,034.85 Reduction in Principal $32,034.85 $33,316.24 $34,648.89 Financing Lease - treat like purchase of asset and note pavable a) PREPARE THE JOURNAL ENTRIES FOR 2019: Date Account Name Jan. 01, 2019 Equipment Notes Payable (Record purchase of automobile) Dec. 31, 2019 Interest Expense Notes Payable Cash (Record installment payment) b) PREPARE THE JOURNAL ENTRIES FOR 2020: Date Account Name Dec. 31, 2020 Interest Expense Notes Payable Cash (Record installment payment) c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Account Name Dec. 31, 2021 Interest Expense Notes Payable Cash (Record installment payment) $67,965.15 $34,648.91 $0.00 Debit $100,000 Credit $100,000 $4,000 $32,034.85 $36,034.85 Debit $2,718.60 $33,316.25 Credit $36,034.85 Debit $1,385.95 $34,648.90 Credit $36,034.85 Example #2, On January 1, 2019 a company purchases an automobile for $100,000 by signing a note for the $100,000, with 4% interest rate. The note is to be paid in three equal payments of $36,034.85 at the end of each year beginning December 31, 2019. Below is the loan reduction schedule (please be sure you understand it)!!!!!! (100,000 * 4% = 4,000) 67,965.15) (36,034.85-4,000 = 32,034.85) (100,000 - 32,034.85 = Date Beg. Balance 2019 $100,000 Interest expense $4,000 Cash Payment Reduction in Principal 36,034.85 $32,034.85 Principal Balance $67,965.15 $67,965.15 $2,718.61 2020 36,034.85 $33,316.24 $34,648.91 2021 $34,648.91 $1,385.96 36,034.85 $34,648.89 $0.00 a) PREPARE THE JOURNAL ENTRIES FOR 2019: Date Jan. 01, 2019 Account Name Equipment Notes Payable (Record purchase of automobile) Dec. 31, 2019 Interest Expense Notes Payable Cash (Record installment payment) b) PREPARE THE JOURNAL ENTRIES FOR 2020: Date Account Name Dec. 31, 2020 Interest Expense Notes Payable Cash (Record installment payment) Debit Credit $100,000 $100,000 $4,000 $32,034.85 $36,034.85 Debit $2,718.60 $33,316.25 Credit $36,034.85 Account Name c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Dec. 31, 2021 Interest Expense Debit $1,385.95 Credit Notes Payable $34,648.90 Cash $36,034.85 (Record installment payment) Example #3, On January 1, 2019 a company issues 100 bonds, each for $1,000, for par, as the interest rate on the bond (stated/coupon rate) is 4% and the market rate is also 4%. They then used this cash to purchase an automobile for $100,000 cash. The bond is to be paid in at the end of THREE years (December 31, 2021). a) PREPARE THE JOURNAL ENTRIES FOR 2019: Date Account Name Jan. 01, 2019 Cash Bonds Payable (Record issues of bonds) Dec. 31, 2019 Interest Expense Cash b) Date (Record market rate) PREPARE THE JOURNAL ENTRIES FOR 2020: Dec. 31, 2020 Account Name Interest Expense Cash (Record market rate) c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Account Name Dec. 31, 2021 Bonds Payable Interest Expense Cash (Record payment) Debit Credit $100,000 $100,000 $4,000 $4,000 Debit Credit $4,000 $4,000 Debit $100,000 Credit $4,000 $104,000 Example #4, On January 1, 2019 a company issues 100 bonds, each for $1,000, for a discount, as the interest rate on the bond (stated/coupon rate) is 3% and the market rate is 4%. They then used this cash to purchase an automobile for $100,000 cash. The bond is to be paid in at the end of THREE years (December 31, 2021). Calculate the cash received from issuing bond: Present value of maturity payment ($100,000* $88,900 Present value of interest payment ($100,000*.03=$3,000) $8,324.91 Present value of cash payments a) PREPARE THE JOURNAL ENTRIES FOR 2019: Date $97,224.91 Account Name Jan. 01, 2019 Cash Debit $97,224.91 Credit Discount on Bonds Payable Bonds Payable $2,775.09 $100,000 Dec. 31, 2019 Interest Expense $3,889 Discount on Bonds Payable Cash $889 $3,000 (Discount balance: 2,775.09-889.00 1,886.09) b) PREPARE THE JOURNAL ENTRIES FOR 2020: Date Dec. 31, 2020 Account Name Interest Expense Discount on Bonds Payable Cash (Discount balance: 1,886.09-924.56-961.53) c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Dec. 31, 2021 Account Name Interest Expense Discount on Bonds Payable Cash (Discount balance is now zero) Debit $3,924.56 Credit $924.56 $3,000 Debit $3,961.53 Credit $961.53 $3,000 Example #5, On January 1, 2019 a company issues 100 bonds, each for $1,000, for a premium, as the interest rate on the bond (stated/coupon rate) is 5% and the market rate is 4%. They then used this cash to purchase an automobile for $100,000 cash. The bond is to be paid in at the end of THREE years (December 31, 2021). Calculate the cash received from issuing bond: Present value of maturity payment $100,000 $ 88.899.64 Present value of interest payment ($100,000*.05-$5,000) $ 13.875.46 Present value of cash payments a) PREPARE THE JOURNAL ENTRIES FOR 2019: $102,775.09 Date Account Name Debit Credit Jan. 01, 2019 Cash $102,775.09 Bonds Payable $100,000 Premium on Bond Payable $2,775.09 Dec. 31, 2019 Interest Expense Premium on Bonds Payable Cash $4,111 $889 $5,000 (Premium balance: 2,775.09-889.00=1,886.09) b) PREPARE THE JOURNAL ENTRIES FOR 2020: Date Account Name Dec. 31, 2020 Interest Expense Premium on Bond Payable Cash (Premium balance: 1,886.09-924.56-961.53) c) PREPARE THE JOURNAL ENTRIES FOR 2021: Date Account Name Dec. 31, 2021 Interest Expense Premium on Bonds Payable Cash Dec. 31, 2021 Bonds Payable Cash (Premium balance is now zero) Debit $4,075.44 $924.56 Credit $5,000 Debit $4,038.47 Credit $961.53 $5,000 $100,000 $100,000 Fill in the amounts below based on the 5 Examples above: Expenses on Income Statement Financing lease (Ex 1) Installment note (Ex 2) Bond at par (Ex 3) Bond at Bond at Premium Discount (Ex 4) (Ex 5) YEAR 1 Depreciation/Amort Interest TOTAL YEAR 2 Depreciation/Amert, Interest TOTAL YEAR 3 Depreciation/Amort. Interest TOTAL Total in 3 years Cash OUTFLOW YEAR 1 YEAR 2 YEAR 3 TOTAL Balance Sheet effect YEAR 1 ASSETS Automobile Less: accumulated depreciation Net Book Value LIABILITIES balance YEAR 2 ASSETS Automobile Less: accumulated depreciation Net Book Value LIABILITIES balance
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Related Book For
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Posted Date:
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