Question

The following transactions are unrelated:
a) Equipment listed at $12,000 was purchased at terms of 4%/10, net 30. To take
advantage of the discount, the company borrowed $9,000 of the purchase price by
issuing a one-year 11 percent note that was repaid with interest at maturity.
b) Equipment with a list price of $5,000 was purchased under the terms of 2%/10,
net 30. Payment was made 20 days after purchase.
c) A company paid $260,000 for land upon which to build a new facility. The cost to
raze and remove an old building on the site of the newly proposed facility was
$50,000. Usable fixtures from the old building were sold for $10,000. The
company paid $3,000 to the architect that designed the new building, $30,000 for
excavation of the basement, and $420,000 to a contractor for construction of the
building.
Required -
Prepare journal entries for the above transactions.

Answer 1

Following are the journal entries to be passed in the books:

a) Equipment A/c Dr. ----- $12000

Vendor A/c. Cr. -------$ 12000

( Being asset has been purchased for $12000)

Bank A/c Dr. -----------$9000

Borrowings Cr. --------$9000

(Being borrowing raised for availing cash discount facility)

**Calculation of Cash Discount:

Equipment Amount = $12000

If paid with in 10 days then discount of 4% shall be provided

= $12000*4%

= $480

Accounting:

Vendor A/c Dr---------$480

Cash Discount Cr ----$480

(Being discount booked as income)

b) Equipment A/c Dr------$5000

Vendor A/c. Cr-------$5000

No cash discount shall be available in this case because payment has been made after 10 days i.e. on 20th day.

c) Amount to be capitalised as per Accounting Standard:

**$260000+50000-10000+3000+30000+420000= $753000

Land &Building A/c Dr ------- $753000

Vendor/Bank A/c. Cr -----------$753000

(Being amount capitalised)