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| LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2016. In payment for the $25.0 million purchase, LCD issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 24%. (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. & 2. | Prepare the journal entries for LCD’s purchase of the components on November 1, 2016 and the first installment payment on November 30, 2016. (Enter your answers in whole dollars. If no journal entry is required for a transaction, select “No journal entry required” in the first account field.) |
| 3. | What is the amount of interest expense that LCD will report in its income statement for the year ended December 31, 2016?. (Enter your answers in whole dollars.) |
Expert Answer
| Date | Accounst title | Dr | Cr |
| Nov 1 2016 | Component Inventory | $25,000,000 | |
| Notes payable | $25,000,000 | ||
| Nov 30 2016 | Interest expenses (25000000*2%) | $500,000 | |
| Notes payable (bal fig) | $1,863,990 | ||
| Cash | 2363990 | ||
| Installment payment | 2363990 | ||
| 25000000/10.57534 | |||
| Amt/PVA of $1 | |||
| n=12 i=24/2=2% | |||
| ans 3 | Interest expenses (25000000-1863990)*2% | 462720 |
