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On January 1, 2020, TPM Inc. acquires a piece of equipment for a

list price of $300,000. It pays $20,000 Enter question
immediately and writes a
note for the remainder. Annual interest of 3% is due every December
31st, and
the principal of the note is payable in 6 years.
TPM’s incremental borrowing rate is 6%, while the seller’s

incremental borrowing rate is 7%. TPM is a
public company. It
depreciates its equipment using the diminishing balance method at
15%. The
equipment’s residual value is $40,000 at the end of its
useful life. Continue to post
Required 16 questions remaining
1. 1) Prepare all required journal entries for the years 2020 and
2021.
2. 2) Determine the Asset’s net book value on January 1, 2024.
3. 3) Determine the note payable carrying value on January 1,
2024. Snap a photo from your
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1. Journal entries in the books of TPM Inc.
Date Particulars Debit Credit

My Textbook Solutions
1-Jan-20 Property, plant & equipment A/c 274,720
Other asset A/c 25,280
To Cash A/c 20,000
To Loan A/c 254,720

Organization Cost... Essentia
To Benefit on loan A/c 25,280 al Behavior Statistic
12th Edition 5th Edition 3rd Editio
(Being PPE was purchased on loan)
View all solutions
31-Dec-20 Interest Expense A/c 15,283
Loan A/c 39,783
To Bank 55,067
(Being first installment of loan was repaid)
31-Dec-20 Other asset Expense A/c 4,213
To Other asset A/c 4,213
(Being the other asset was written for the year)
31-Dec-21 Interest Expense A/c 12,896
Loan A/c 40,770
To Bank A/c 53,667
(Being second installment of loan was repaid)
31-Dec-21 Other asset Expense A/c 4,213
To Other asset A/c 4,213
(Being the other asset was written for the year)
Working Notes:
Actual rate of interest to be charged for the interest on loan

is 6%, but the rate of interest charged is only
3%.
So value of the machine is determined on the basis of present

value of repayment at actual rate of interest
i.e. 6%
It is assumed that 280000 principal is repaid in 6 equal annual

installments, so the value of each
installment is 46667
(280000/6)
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Calculation of amount repayment at every year
end:
 
Year Remaining
Textbook Solutions Expert Q&A
Principal Interest @ 3% on
Study Pack Practice
Installment payable every year

end principal repayment remaining principal (Principal +

Interest)
2020 280,000 46,667 8400 55,067
2021 233,333 46,667 7000 53,667
2022 186,667 46,667 5600 52,267
2023 140,000 46,667 4200 50,867
2024 93,333 46,667 2800 49,467
2025 46,667 46,667 1400 48,067
Calculation of value of the property, plant &

equipment:
Year Installment repayable PVF @ 6% Present value
1-Jan-20
20,000
1 20000
2020
55,067 0.943
51,928
2021
53,667 0.89
47,763
2022
52,267 0.84
43,904
2023
50,867 0.792
40,286
2024
49,467 0.747
36,952
2025
48,067 0.705
33,887
Present value of repayment 274,720
So, value of the machine is $274720
Interest repayment schedule:
Year Opening Balance Interest @ 6% Repayment Closing Balance
2020 254720.2

15,283
55,067
214,937
2021
214,937
12,896
53,667
174,166
2022
174,166
10,450
52,267
132,350
2023
132,350
7,941
50,867
89,424
2024
89,424
5,365
49,467
45,323
2025
45,323
2,744
48,067
-
Step 3
2.
Net Book Value of PPE
Year Opening Balance Depreciation @ 15% Closing Balance
2020
274,720
41,208
233,512
2021
233,512
35,027
198,485
2022
198,485
29,773
168,712
2023
168,712
25,307
143,406
2024
143,406
21,511
121,895
2025
121,895
18,284
103,611
Asset’s net book value as on January 1, 2024 is

$143,406
3.
Interest repayment schedule:
Year Opening Balance Interest @ 6% Repayment Closing Balance
2020 254720.2

15,283
55,067
214,937
2021
214,937
12,896
53,667
174,166
2022
174,166
10,450
52,267
132,350
2023
132,350
7,941
50,867
89,424
2024
89,424
5,365
49,467
45,323
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2025
45,323
2,744
48,067
-

Note payable carrying value as on January 1, 2021 is

$89,424.
Comment

Practice with similar questions
Q: On January 1, 2020, TPM Inc. acquires a piece of equipment for a

list price of $300,000. It pays
$20,000 immediately
and writes a note for the remainder. Annual
interest of 3% is due every December 31st, and the
principal of the note
is payable in 6 years.
incremental borrowing rate is 7%.
TPM is a public company. It...
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Q: Problem 1 (9.5 marks) On January 1, 2020, TPM Inc. acquires a piece of equipment for a list price of $300,000. It pays
$20,000 immediately and writes a note for the remainder. Annual interest of 3% is due every December 31st, and the
principal of the note is payable in 6 years. TPM's incremental borrowing rate is 6%, while the seller's incremental
borrowing rate is 7%. TPM is a...
A: See answer
Q: On January 1, 2020, TPM Inc. acquires a piece of equipment for a

list price of $300,000. It pays
$20,000 immediately
and writes a note for the remainder. Annual
interest of 3% is due every December 31st, and the
principal of the note
is payable in 6 years.
incremental borrowing rate is 7%.
TPM is a public company. It...
A: See answer
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10/5/21, 9:25 AM On January 1, 2020, TPM Inc. Acquires A Piece Of E... | Chegg.

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On January 1, 2020, TPM Inc. acquires a piece of equipment for a

TPM’s incremental borrowing rate is 6%, while the seller’s

1. Journal entries in the books of TPM Inc.

Date Particulars Debit Credit

Other asset A/c 25,280

To Cash A/c 20,000

To Loan A/c 254,720

Loan A/c 39,783

(Being first installment of loan was repaid)

31-Dec-20 Other asset Expense A/c 4,213

To Other asset A/c 4,213

(Being the other asset was written for the year)

31-Dec-21 Interest Expense A/c 12,896

Loan A/c 40,770

To Bank A/c 53,667

(Being second installment of loan was repaid)

31-Dec-21 Other asset Expense A/c 4,213

To Other asset A/c 4,213

(Being the other asset was written for the year)

Actual rate of interest to be charged for the interest on loan

So value of the machine is determined on the basis of present

It is assumed that 280000 principal is repaid in 6 equal annual

end principal repayment remaining principal (Principal +

2020 280,000 46,667 8400 55,067

2021 233,333 46,667 7000 53,667

2022 186,667 46,667 5600 52,267

2023 140,000 46,667 4200 50,867

2024 93,333 46,667 2800 49,467

2025 46,667 46,667 1400 48,067

Calculation of value of the property, plant &

Year Installment repayable PVF @ 6% Present value

Present value of repayment 274,720

So, value of the machine is $274720

Interest repayment schedule:

Year Opening Balance Interest @ 6% Repayment Closing Balance

2020 254720.2

Net Book Value of PPE

Year Opening Balance Depreciation @ 15% Closing Balance

Asset’s net book value as on January 1, 2024 is

Interest repayment schedule:

Year Opening Balance Interest @ 6% Repayment Closing Balance

2020 254720.2

Note payable carrying value as on January 1, 2021 is

Practice with similar questions

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