On December 31, 2012, Americana Airlines purchased machinery having a cash selling company paid $10,000 down and agreed to finance the remainder by making four equal pa the implicit annual interest rate of 12%. The company uses the effective interest method. payments each December 31 at 1. Determine the amount of the annual payments to be made under the financing agreement. 2. Prepare the journal entry to record the acquisition of the machinery on 3. Prepare the journal entry on December 31, 2013. 4. Prepare the journal entry on December 31, 2014. S. Repeat requirements 3 and 4 asuming the company uses the strmight-line method for recognizing interest expense. Answer 1. The total cash price of the machinery is $85,933.74. The company paid $10,000 down, leaving a balance of $75,933.74 to finance. This amount represents the present value of four 12%. The problem can be solved by using the following inputs on your financial calculator 4-N, 12-i%, 75,933.74 PV, o-rv. CPT-PMT payments of unknown amounts discounted at Each of the payments are $25,000, which means that the company will be paying $110,000 [(S25,000x 4)+ S10,000] in total for the machinery. $24,066.26 ($110,000-$85,933.74) of those payments represent interest being paid for the financing arrangement. The journal entry to record the acquisition of the machinery on December 31, 2012, would be: 2. The journal entry on December 31, 2013, would be The jourmal entry on December 31, 2014, would be: 3. 4. The journal entries on December 31, 2013, and 2014, would be the same under the straight-line method as follows