An internet cafe purchased computers chairs and

1. An internet cafe purchased computers, chairs, and tables for customers to use. The items
are expected to be used for the next few years. How should the company account for the
cost of the three items?
a. Expense the cost on the income statement
b. Record the cost as a current asset on the balance sheet
c. Record the cost as a long-term asset on the balance sheet
d. None of the above
2. On May 1, 2021, XYZ Inc. purchased computer equipment that will be used for
administration purposes. The cost of the computer equipment was $25,000 and it was
financed with a long-term loan from the bank. The useful life of the computer equipment is 5
years (60 months), and the company estimates that the residual value will be $1,000 at the
end of its useful life. There was no delivery fee.
a. Book the journal entry for the purchase of the computer equipment.
b. Calculate the depreciable cost of the computer equipment.
c. Using the straight-line method, book the monthly journal entry to charge the cost
of the computer equipment to the income statement.
d. It is now December 31, 2021 and XYZ Inc. has owned the computer equipment
for 8 months. Calculate the asset balance that should be recorded on the balance
sheet.
e. The computer equipment was sold for $700 cash at the end of its useful life.
Book the correct journal entry.
3. Recall from question #2 that on May 1, 2021, XYZ Inc. purchased computer equipment at a
cost of $25,000 and it was financed with a long-term loan from the bank. The company
agreed to pay back the full amount to the bank in 5 years. The bank will charge XYZ Inc. an
annual interest rate of 7%, on May 1 of each year for 5 years.
a. Journalize the entry to record annual principal payments.
b. Create an interest payment schedule, and answer the following:
i. What is the total cost to borrow $25,000 over 5 years at 7% interest?
ii. What is the journal entry to record interest paid on April 30, 2024?
c. Assume that instead of borrowing money from the bank, XYZ Inc. owners
invested $25,000 of their money into the company in exchange for shares to
purchase the computer equipment. Journalize the correct entries for this
transaction.