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Cardinals Corporation purchased a computer on December 31, 2013, for $210,630, paying

$60,180 down and agreeing to pay the balance in five equal installments of $30,090
payable each December 31 beginning in 2014. An assumed interest rate of 9% is implicit in
the purchase price.

Prepare the journal entry at the date of purchase. (Round answers to 0 decimal places, e.g.
5,275. Credit account titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the account titles and enter 0
for the amounts. Round factor values to 5 decimal places, e.g. 1.25124.)
(4 accounts)

Prepare the journal entry at December 31, 2014, to record the payment and interest
(effective interest method employed). (Round answers to 0 decimal places, e.g. 5,275.
Credit account titles are automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the
amounts.)
(4 accounts)

Prepare the journal entry at December 31, 2015, to record the payment and interest
(effective interest method employed). (Round answers to 0 decimal places, e.g. 5,275.
Credit account titles are automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the
amounts.)

Solution:

(a) Equipment.............................................................. 177,219.60*

Discount on Notes Payable .............................................33,410.39

Cash ................................................................................. 60,180

Notes Payable ................................................................... 150,450

*PV of $30,090 annuity @ 9% for

5 years ($30,090 X 3.88965) $ 117,039.6

Down payment 60,180

Capitalized value of equipment $177,219.60

(b) Notes Payable........................................................ 30,090

Interest Expense (see schedule)......................... 10,533.56

Cash................................................................. 30,090
Discount on Notes Payable ............................... 10,553.56

Year Note Payment 9% Interest Reduction of Balance

Principal

12/31/09 $117,039.6

12/31/10 $30,090.00 $10,533.56 $19,556.44 97,483.17

12/31/11 30,090.00 8,773.49 21,316.51 76,166.66

(c) Notes Payable.................................................. 30,090.00

Interest Expense ................................................... 8,773.49

Cash............................................................................ 30,090.00

Discount on Notes Payable.............................................. 8,773.49