Question

Tristar Production Company began operations on September 1, 2021. Listed below are a number of transactions that occurred during its first four months of operations. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

1. On September 1, the company acquired five acres of land with a building that will be used as a warehouse. Tristar paid $220,000 in cash for the property. According to appraisals, the land had a fair value of $151,200 and the building had a fair value of $88,800.
2. On September 1, Tristar signed a $52,000 noninterest-bearing note to purchase equipment. The $52,000 payment is due on September 1, 2022. Assume that 10% is a reasonable interest rate.
3. On September 15, a truck was donated to the corporation. Similar trucks were selling for $3,700.
4. On September 18, the company paid its lawyer $3,500 for organizing the corporation.
5. On October 10, Tristar purchased maintenance equipment for cash. The purchase price was $27,000 and $1,100 in freight charges also were paid.
6. On December 2, Tristar acquired various items of office equipment. The company was short of cash and could not pay the $6,700 normal cash price. The supplier agreed to accept 200 shares of the company's no-par common stock in exchange for the equipment. The fair value of the stock is not readily determinable.
7. On December 10, the company acquired a tract of land at a cost of $32,000. It paid $3,500 down and signed a 12% note with both principal and interest due in one year. Twelve percent is an appropriate rate of interest for this note.

Required:

Prepare journal entries to record each of the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round final answers to the nearest whole dollars.)

Answer 1

Journal entry to record above mentioned transactions are:-

Date	Particular	Debit	Credit
September, 1	Land	$138,600
	Building	$81,400
	Cash		$220,000
	(To record acquisition cost of land and building)

Working notes:

Calcualtio of initial value of land and building:

Asset	Fair value($)	Percent of Total fair value(%)	Initial valuation ($)
Land	$151,200	63%	$138,600
Buildng	$88,800	37%	$81,400
Total	$240,000	100%	$220,000

Percentage of total fair value = Fair value of land or building /total fair value

Initial valuation = Percentage of total fair value *cash paid for the property

Journal entry to record the acquition of equipment on notes:

Date	Particular	Debit	Credit
September,1	Equipment	$47,273
	Discount on note payable	$4,727
	Note payable		$52,000
	( to record the acquisition of equipment)

Calculation of present value of note payable:-

Present value = Note payable * present value of $1

= $52,000* 0.9091 = $47,273.2 or $47,273(rounded)

Note: PV factor ( Present value of $1: n=1: i =10%) is taken from table value.

Discount on note payable: Note payable - present value of equipment

= $52,000 - $47,273 = $4,727

Date	Particular	Debit	Credit
September,15	Truck	$3,700
	Revenue- donation of asset		$3,700
	( to record the acquisition cost of a truck by donation )
September, 18	Organization cost expense	$3,500
	Cash		$3,500
	( to record legal expenses paid)
October, 10	Equipment	$28,100
	Cash ( $27,000 + $1,100)		$28,100
	( to record equipment purchased)
December, 2	Office equipment	$6,700
	Common stock		$6,700
	( to record purcahse of equipment )
December,10	Land	$32,000
	Cash		$3,500
	Notes payable		$28,500
	( to record purchase of land)