On January 1, Luther Co. issue
January 18th, 2023
On January 1, Luther Co. issued a $1,000,000, five-year, 8%installment note payable with payments of $250,456 principal plusinterest due on January 1 of each year for the next five years.
Required:
| 1. | Prepare the adjusting journalentry at December 31 to accrue interest for the year. Refer to theChart of Accounts for exact wording of account titles. | ||||||||||||||||
| 2. | Show the account(s) andamount(s) and where it(they) will appear on a multi-step incomestatement prepared on December 31. | ||||||||||||||||
| 3. |
Show the account(s) and amount(s) and where it(they) willappear on a classified balance sheet prepared on December31. Show the account(s) and amount(s) and where it(they) will appearon a classified balance sheet prepared on December 31. Refer to thelists of Amount Descriptions for the exact wording of the answerchoices for text entries.
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Answer:
| N | A | B | C | D | E=A-D | |||||
| Year | Beginning Balance | Total Payment | Interest payment | Principal payment | Ending Balance | |||||
| 1 | $1,000,000 | $250,456 | $80,000 | $170,456 | $829,544 | |||||
| 2 | $829,544 | $250,456 | $66,363 | $184,093 | $645,451 | |||||
| 3 | $645,451 | $250,456 | $51,636 | $198,820 | $446,630 | |||||
| 4 | $446,630 | $250,456 | $35,730 | $214,726 | $231,904 | |||||
| 5 | $231,904 | $250,456 | $18,552 | $231,904 | $0 | |||||
| C=Interest Payment | (Calculated using excel IPMT function withRate=8%,Per=N, Nper=5, PV=-1000000 | |||||||||
| D=Principal payment | (Calculated using excel PPMT function withRate=8%,Per=N, Nper=5, PV=-1000001 | |||||||||
| ADJUSTING JOURNAL ENTRY | ||||||||||
| Date | Account Title | Debit | Credit | |||||||
| .Dec 31 , Year 1 | Interest expense | $80,000 | ||||||||
| Interest payable | $80,000 | |||||||||
| .Dec 31 , Year 2 | Interest expense | $66,363 | ||||||||
| Interest payable | $66,363 | |||||||||
| .Dec 31 , Year 3 | Interest expense | $51,636 | ||||||||
| Interest payable | $51,636 | |||||||||
| .Dec 31 , Year 4 | Interest expense | $35,730 | ||||||||
| Interest payable | $35,730 | |||||||||
| .Dec 31 , Year 5 | Interest expense | $18,552 | ||||||||
| Interest payable | $18,552 | |||||||||
| 2 | MULTI-STEP ACCOUNT STATEMENT | |||||||||
| Sales | ||||||||||
| Cost of goods sold | ||||||||||
| Gross profit | ||||||||||
| Operating expenses | ||||||||||
| Profit before interest and taxes | ||||||||||
| Interest expenses | $80,000 | |||||||||
| Profit before taxes after interest | ||||||||||
| Tax expenses | ||||||||||
| Net Profit | ||||||||||
| Partial Balance Sheet at endof December Year1 | ||||||||||
| 1 | Current Liabilities: | |||||||||
| 2 | Current portion of long termliabilities | $184,093 | ||||||||
| 3 | ||||||||||
| 4 | Long-Term Liabilities: | |||||||||
| 5 | Long term liabilities | $645,451 | ||||||||
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