Question

Problem I: (20 pts) On May 1, 2018, Stephenson Inc. purchased equipment and office furniture for a total of $70,000. Stephenson paid $20,000 down in cash and financed the remaining $50,000 through the issuance of a 1-year, 12% term note. Both interest and principal on the note are due when the note matures on May 1, 2019.

Stephenson has determined that the equipment and office furniture have fair market values of $60,000 and $20,000, respectively.

Part A: Prepare the journal entry Stephenson should make to record the acquisition of the equipment and furniture.

Date		Debit	Credit
5/1/18

Part B: Assume that Stephenson has a December 31 year-end. Prepare the 12/31/18 accrued interest entry and the 5/1/19 entry to pay back the note. Please ignore depreciation entries. Round interest calculations to the nearest whole month and dollar.

Date		Debit	Credit
12/31/18
5/1/19

Answer 1

Part A:

Date	Account Titles and Explanation	Debit	Credit
5/1/18	Equipment ($70000 x $60000/$80000)	52500
	Office furniture ($70000 x $20000/$80000)	17500
	Cash		20000
	Notes payable		50000
	(To record the acquisition of equipment and furniture)

Part B:

Date	Account Titles and Explanation	Debit	Credit
12/31/18	Interest expense ($50000 x 12% x 8/12)	4000
	Interest payable		4000
	(To record interest accrued on note payable)
5/1/19	Interest payable	4000
	Interest expense ($50000 x 12% x 4/12)	2000
	Notes payable	50000
	Cash		56000
	(To record payment of interest and principal on note)