Answered: On January 1, 2021, the Montgomery…

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 1PA: On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10%...

See similar textbooks

Related questions

Concept explainers

Question

On January 1, 2021, the Montgomery Company agreed to purchase a building by making six payments. The first three are to be $26,000 each, and will be paid on December 31, 2021, 2022, and 2023. The last three are to be $41,000 each and will be paid on December 31, 2024, 2025, and 2026. Montgomery borrowed other money at a 12% annual rate. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. At what amount should Montgomery record the note payable and corresponding cost of the building on January 1, 2021?
2. How much interest expense on this note will Montgomery recognize in 2021?

Expert Solution

Step 1

Answer:

Part 1:

$\begin{array}{rcl} P V f a c t o r f o r d e f e r r e d a n n u i t y & = & P V A f a c t o r, \\ n & = & 6, \\ i & = & 12 % - P V A f a c t o r, \\ n & = & 3, \\ i & = & 12 % \\ = & 4.1114 - 2.4018 \\ = & 1.7096 \end{array}$

$\begin{array}{rcl} A m o u n t R e c o r d e d & = & $ 26, 000 (P V A f a c t o r, n = 3, i = 12 %) + $ 41, 000 (P V f a c t o r f o r d e f e r r e d a n n u i t y) \\ = & $ 26, 000 (2.4018) + $ 41, 000 (1.7096) \\ = & $ 62, 446.8 + $ 70, 093.6 \\ = & $ 132, 540.4 \end{array}$

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions