Question: (Entries for Equipment Acquisitions) Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of \(10,000. Presented below are three independent cases related to the equipment. (Round to the nearest dollar.)

1. Geddes 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.
2. Geddes traded in equipment with a book value of \)2,000 (initial cost \(8,000), and paid \)9,500 in cash one month after the purchase. The old equipment could have been sold for \(400 at the date of trade. (The exchange has commercial substance.)
3. Geddes gave the vendor a \)10,800 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 9%.

Instructions

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

Step by step solution

01

Meaning of Acquisition Cost

In accounting terms, acquisition cost alludes to the cost of acquiring a particular thing. There are three common trade contexts when it is utilized: mergers and acquisitions, fixed resources, and client acquisition

02

(a) Preparing journal entry

Date	Particular	Debit ($)	Credit ($)
	Equipment	10,000
	Accounts Payable		10,000
	Accounts Payable	10,000
	Equipment		200
	Cash		9,800

Working notes:

Calculation of cost of equipment

$$\begin{gathered} \mathit{E}\mathit{q}\mathit{u}\mathit{i}\mathit{p}\mathit{m}\mathit{e}\mathit{n}\mathit{t}\mathbf{=}\mathit{C}\mathit{o}\mathit{s}\mathit{t}\mathbf{\times }\mathit{C}\mathit{r}\mathit{e}\mathit{d}\mathit{i}\mathit{t}\mathbf{}\mathit{t}\mathit{e}\mathit{r}\mathit{m}\mathit{s} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{02} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{20}0 \end{gathered}$$

03

(b) Preparing journal entry

Date	Particular	Debit ($)	Credit ($)
	Equipment	9,900
	Loss on Disposal of Equipment	1,600
	Accumulated Depreciation-Equipment	6,000
	Accounts Payable		9,500
	Equipment (old)		8,000
	Accounts Payable	9,500
	Cash		9,500

Working notes:

Calculation of the amount of Loss on Disposal of Equipment

Cost	$8,000
Less: Accumulated depreciation	6,000
Book value of the equipment (old)	2,000
Less: Fair value of the equipment (old)	400
Loss on disposal of equipment	$1,600

04

(c) Preparing journal entry

Date	Particular	Debit ($)	Credit ($)
	Equipment	9,908
	Discount on Note Payable	892
	Note Payable		10,800
	Interest Expense	892
	Note Payable	10,800
	Discount on Note Payable		892
	Cash		10,800

Working notes:

Calculation of value of equipment

$$\begin{gathered} Equipmentvalue=Bearing note\times Presentvalue \\ =\$10,800\times 0.91743 \\ =\$9,908 \end{gathered}$$

Note: PV of $1@ 9% for 1 year

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