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AC1220 Lab 5.3

Introduction

Jake’s Computer Sales and Repair acquired land, land improvements, and a building in exchange for a $180,000 note payable. The building was renovated at a cost of $15,000 before being placed into use. The cost of the renovation work was capitalized, and Jake’s Computer Sale and Repair signed a note payable for the full amount.

Notes payable are dated June 1, 20x1, totaling $195,000. The notes are payable over 10 years at an annual interest rate of 6 percent. The principal is to be repaid in equal annual installments of $19,500 each. Interest and principal payments are scheduled for June 1 each year, from 20x1 to 2x11.

Requirement 1

a. Journalize the issuance of the long-term note payable.

Date	Account and Explanation	Debit	Credit
6/1/x1

	*To record long-term note payable*

b. Compute the interest accrued on the long-term notes payable at December 31, 20x1.

b. Journalize the accrual of interest at December 31, 20x1.

Date	Account and Explanation	Debit	Credit
12/31/x1

	*To accrue interest on long-term note payable*

c. Make the entry necessary at December 31, 20x1, to reclassify the first principal installment on the note payable as the current portion of the long-term notes payable.

Date	Account and Explanation	Debit	Credit
12/31/x1

	*To accrue interest on long-term note payable*

AC1220 ACCOUNTING I Lab 5.3

d. Enter the correct amounts into the shaded cells of the following partial balance sheet dated December 31, 20x1:

In the Income Statement for the Year Ended Dec. 31, 20x1	In the Balance Sheet at Dec. 31, 20x1
Expenses	Current Liabilities
*Interest Expense*		*Current Portion of Long-Term Notes Payable*
		Long-Term Liabilities
		*Long-Term Notes Payable*

Requirement 2

Jake is considering raising additional cash by issuing $100,000 in bonds with a stated interest rate of 6 percent and a maturity of 10 years.

a. Compute the annual interest payment on the bonds payable.

b. Compute the present value of the bonds if the market interest rate is 8 percent. To compute the present value of the bonds, you can use the present value tables in Appendices B-1 and B-2 of your textbook, or you can set up the following formulas using Microsoft Excel:

c. Would these bonds be issued at a discount or at a premium? Explain.

d. Compute the bond discount or premium.

e. Journalize the issue of the bonds.

Date	Account and Explanation	Debit	Credit
6/1/x1


	*To accrue interest on long-term note payable*

f. Compute the amount by which the discount or premium would be amortized in each period, assuming straight-line amortization.