Question

On March 1, fixtures and equipment were purchased for $5,000 with a downpayment of $2,000 and a $3,000 note, payable in one year. Interest of 6.5% per year was due when the note was repaid. The estimated life of the fixtures and equipment is 10 years with no expected salvage value. [Note: Record the complete March 1 entry for the equipment purchase first, the complete March 31 depreciation adjusting entry second, and the complete March 31 interest adjusting entry third.]

Answer 1

March 1: Entry for the equipment purchase

Cash -$2,000

Fixtures and equipment $5,000

Notes payable $3,000

March 31: Depreciation adjusting entry

Debit Credit

Fixtures and equipment -$42

(5000/10/12)

Retained earnings -$42

March 31: Interest adjusting entry

Debit Credit

Interest payable $16.25

(3000*6.5%/12)

Retained earnings -$16.25