Question

1:Rusty Corporation purchased a rust-inhibiting machine by paying $51,000 cash on the purchase date and agreed...

1:Rusty Corporation purchased a rust-inhibiting machine by paying $51,000 cash on the purchase date and agreed to pay $10,200 every three months during the next two years. The first payment is due three months after the purchase date. Rusty's incremental borrowing rate is 8%. The liability reported on the balance sheet as of the purchase date, after the initial $51,000 payment was made, is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.)

$125,720.

$74,720.

$132,600.

$81,600.

2:

Miranda Company borrowed $123,000 cash on September 1, 2016, and signed a one-year 4%, interest-bearing note payable. Assume no adjusting entries have been made during the year. Which of the following would be the required adjusting entry at the end of the December 31, 2016 accounting period?

  Interest expense

1,640

       Interest payable

1,640

  Interest expense

4,920

       Interest payable

4,920

  Interest payable

1,640

       Interest expense

1,640

  Notes payable

123,000

  Interest expense

4,920

       Cash

127,920

Homework Answers

Answer #1
Q1.
Answer is $ 74720
Explanation:
Quarterly payment for 8 periods 10200
Annuity factor for 8 periods at 2% 7.3255
Present value of Quarterly payments 74720.1
Q2.
Answer is Interest expense Dr. $1640 ; Interest payable Cr. $1640
Explanation:
Amount borrowed: 123000
Date of borrowing 1-Sep
Period of borrowing till Dec31 4 months
Rate of interest 4%
Interest expense till Dec31 (123000*4%*4/12) 1640
Journal entry:
Interest Expense Account Dr. 1640
       Interest payable 1640
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