Question

On December 31, 2010, Faital Company acquired a computer from Plato Corporation by issuing a $600,000 zero-interest-bearing note, payable in full on December 31, 2014. Faital Company's credit rating permits it to borrow funds from its several lines of credit at 10%. The computer is expected to have a 5-year life and a $70,000 salvage value.

(a) Prepare the journal entry for the purchase on December 31, 2010.
(b) Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization (use effective-interest method) on December 31, 2011.
(c) Prepare any necessary adjusting entries relative to depreciation and amortization on December 31, 2012.

Answer 1

Journal Entry to record the transaction

Dr. Cr.

(a) Dec 31 , 2010

Computer $600,000

Note payable $600,000

(b) Dec 31 , 2011

Depreciation Expense $106,000

Accumulated Depreciation $106,000

(b) Dec 31 , 2012

Depreciation Expense $106,000

Accumulated Depreciation $106,000

Step-by-step explanation:

Depreciation = ( $600,000 - $70,000 ) / 5 = $106,000