The interest rate is 6% and payment terms are $40,000 plus interest due on March 31, 2021 and the balance due, plus interest, on March 31, 2022. Prepare journal entries required on December 31, 2020, March 31, 2021, December 31, 2021 and March 31, 2022.

ABC Moving and Storage acquired a new truck for $100,000, paying $20,000 cash and signing a promissory note for the balance. According to the bill of sale, ABC also paid cash for sales tax of 8%, plus registration, tags and delivery fees of $400. The new truck is estimated to have a 5-year economic life and a residual (salvage) value of $8,400. ABC uses straight-line depreciation. Due to delays, the truck was not placed in service until April 1, 2020. ABC has a December 31 fiscal year.

This is the complete question,

Explanation:

                                    Account                               Debit                  Credit

Dec 31. 2020  Depreciation expense            $15,000  

                           Accumulated depreciation                       $ 15,000

                             [Depreciation =

                            $100,000/5 × 9/12]  

Dec 31. 2020    Interest expense                   $3,600  

                               Interest payable                                      $ 3,600

                              [Interest =

                              $80,000 × 6% × 9/12]  

March 31. 2021Interest payable                  $3,600  

                               Interest expense                  $1,200  

                               Note payable                          $40,000  

                                Cash                                                      $ 44,800

                            [Interest =

                           $80,000 × 6% × 3/12]  

Dec 31. 2021    Depreciation expense           $20,000  

                         Accumulated depreciation                             $ 20,000

                        [Depreciation =

                         $100,000/5]  

Dec 31. 2021   Interest expense                             $ 1,800  

                          Interest payable                                                 $ 1,800

                          [Interest =

                         $40,000 × 6% × 9/12]  

March 31. 2022Interest payable                     $ 1,800  

                               Interest expense                     $  600  

                                Note payable                     $ 40,000  

                                 Cash                                                          $42,400

                                 [Interest =

                                  $40,000 × 6% × 3/12]

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