Question

Pina Engineering Corporation purchased conveyor equipment with a list price of $10,100. Presented below are three independent cases related to the equipment.

(a)		Pina paid cash for the equipment 8 days after the purchase. The vendor’s credit terms are 2/10, n/30. Assume that equipment purchases are initially recorded gross.
(b)		Pina traded in equipment with a book value of $1,800 (initial cost $8,500), and paid $10,200 in cash one month after the purchase. The old equipment could have been sold for $400 at the date of trade. (The exchange has commercial substance.)
(c)		Pina gave the vendor a $11,800 zero-interest-bearing note for the equipment on the date of purchase. The note was due in one year and was paid on time. Assume that the effective-interest rate in the market was 10%.

Prepare the general journal entries required to record the acquisition and payment in each of the independent cases above.

Answer 1

Answer :-

(a) :-

Particulars	Debit	Credit
Equipment	$10,100
Accounts payable		$10,100
( To record the puchase of equipment on account )
Accounts payable	$10,100
Cash		= $10,100 - $202 = $9,898
Equipment		= $10,100 * 2% = $202
( (To record the payment on account )

(b) :-

Particulars	Debit	Credit
Equipment (New )	= $10,200 + $400 = $10,600
Loss on Disposal of Equipment	= $1,800 - $400 = $1,400
Accumulated DepreciationEquipment	= $8,500 - $1,800 = $6,700
Accounts Payable		$10,200
Equipment (Old)		$8,500
(To record the puchase of equipment on account.)
Accounts Payable	$10,200
Cash		$10,200
(To record the payment on account.)

(c) :-

Particulars	Debit	Credit
Equipment	= 11,800 * 0.9091 = $10,727.38
Discount on Notes Payable	= 11,800 - 10,727.38 = $1,072.62
Notes Payable		$11,800
(To record the puchase of equipment with a note)
Interest Expense	$1,072.62
Notes Payable	$11,800
Discount on Notes Payable		$1,072.62
Cash		$11,800
(To record the payment of the note)