Information Company purchased an asset that cost $70,000 on January 1, 2014. Arrangements were made with the supplier to pay $10,000 cash on January 1, 2014, and the balance was to be paid over a three-year period, with equal annual payments of $24,553 to be made at the end of 2014, 2015, and 2016. Each payment will include principal plus interest on the unpaid balance at 11% per year.
Requirements:
B. Prepare the journal entry for the payment on December 31, 2015.
C. Explain the change, over time, on the amount of interest and the balance of the debt principal.

Question

Information Company purchased an asset that cost $70,000 on January 1, 2014. Arrangements were made with the supplier to pay $10,000 cash on January 1, 2014, and the balance was to be paid over a three-year period, with equal annual payments of $24,553 to be made at the end of 2014, 2015, and 2016. Each payment will include principal plus interest on the unpaid balance at 11% per year.
Requirements:  
B. Prepare the journal entry for the payment on December 31, 2015.
C. Explain the change, over time, on the amount of interest and the balance of the debt principal.

Quizplus · Accepted Answer

The Answer of Information Company purchased an asset that cost $70,000 on January 1, 2014. Arrangements were made with the supplier to pay $10,000 cash on January 1, 2014, and the balance was to be paid over a three-year period, with equal annual payments of $24,553 to be made at the end of 2014, 2015, and 2016. Each payment will include principal plus interest on the unpaid balance at 11% per year.
Requirements:  
B. Prepare the journal entry for the payment on December 31, 2015.
C. Explain the change, over time, on the amount of interest and the balance of the debt principal.

Information Company Purchased an Asset That Cost $70,000 on January