P14-8

(Entries for Zero-Interest-Bearing Note) On December 31, 2007, Jose Luis Company acquired a

computer from Cuevas Corporation by issuing a $400,000 zero-interest-bearing note, payable in full on

December 31, 2011. Jose Luis Company’s credit rating permits it to borrow funds from its several lines of

credit at 10%. The computer is expected to have a 5-year life and a $50,000 salvage value.

Instructions

(a) Prepare the journal entry for the purchase on December 31, 2007.

(b) Prepare any necessary adjusting entries relative to depreciation (use straight-line) and amortization

(use effective interest method) on December 31, 2008.

(c) Prepare any necessary adjusting entries relative to depreciation and amortization on December

31, 2009.

 

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