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Luke Skywalker's Sky Walkers, a manufacturer of mobility aids, acquired a machine on December 31, 2018, in exchange for $10,000 cash, paid up front, and
Luke Skywalker's Sky Walkers, a manufacturer of mobility aids, acquired a machine on December 31, 2018, in exchange for $10,000 cash, paid up front, and a note payable. The payment plan requires 10 annual payments of $9,000, with the first payment to be made on December 31, 2019. The annual effective interest rate of the Note is 6%. (a) Calculate the carrying value of the installment loan when it is issued on December 31, 2018 (4 points): (b) Calculate the acquisition cost of the machine (4 points): (c) Prepare the journal entry that Skywalker will record for the first installment payment on December 31, 2019 (4 points): Account Title Account Type and + or - Debit: Credit: (d) How much interest expense will Skywalker record for 2020? (4 points) (e) Skywalker estimates a useful life of 8 years for the machine, and a salvage value of $8,000. Skywalker uses the straight-line depreciation method. Calculate the carrying value of the machine as of December 31, 2021 (after 3 years of use). (4 points) Depreciation expense = (acquisition cost - salvage value) / useful life (f) What will be the carrying value of the Note Payable after the cash payment made on December 31, 2028? (2 points) (g) What is the total interest expense that Skywalker will record over the life of the installment loan? (4 points)
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