(Entries for Zero-Interest-Bearing Note; Payable in Installments) Sabonis Cosmetics Co. purchased machinery on December 31, 2016, paying \(50,000 down and agreeing to pay the balance in four equal installments of \)40,000 payable each December 31. An assumed interest of 8% is implicit in the purchase price.

Instructions Prepare the journal entries that would be recorded for the purchase and for the payments and interest on the following dates.

(Round answers to the nearest cent.)

(a) December 31, 2016. (d) December 31, 2019.

(b) December 31, 2017. (e) December 31, 2020.

(c) December 31, 2018.

Date

Accounts and Explanation

Debit ($)

Credit ($)

31, Dec 2016

Machine

182,500

Discount on notes payable

27,500

Cash

50,000

Note payable

160,000

(To record the purchase of machine against note)

Particular

Amount $

Present value of the note payable ($40,000 @ 8% for 4 years) (3.3125)

$132,500

Down payment

$50,000

The capitalized value of the machine

$182,500

Date

Cash paid

Interest expenses

Amortization

Carrying amount of note

31 Dec 2016

$132,500

31 Dec 2017

$40,000

$10,600

$29,400

$103,100

31 Dec 2018

$40,000

$8,248

$31,752

$71,348

31 Dec 2019

$40,000

$5,708

$34,292

$37,056

31 Dec 2020

$40,000

$2,965

$37,056

$0

Date

Accounts and Explanation

Debit ($)

Credit ($)

31 Dec 2017

Note payable

$40,000

Cash

$40,000

31 Dec 2017

Interest expenses

$10,600

Discount on notes payable

$10,600

Date

Accounts and Explanation

Debit ($)

Credit ($)

31 Dec 2018

Note payable

40,000

Cash

40,000

31 Dec 2018

Interest expenses

8,248

Discount on notes payable

8,248

Date

Accounts and Explanation

Debit ($)

Credit ($)

31 Dec 2019

Note payable

40,000

Cash

40,000

31 Dec 2019

Interest expenses

5,708

Discount on notes payable

5,708

Date

Accounts and Explanation

Debit ($)

Credit ($)

31 Dec 2019

Note payable

40,000

Cash

40,000

31 Dec 2019

Interest expenses

2,965

Discount on notes payable

2,965