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Chapter 10: Q5BE (page 532)

Garcia Corporation purchased a truck by issuing an $80,000, 4-year, zero-interest-bearing note to Equinox Inc. The market rate of interest for obligations of this nature is 10%. Prepare the journal entry to record the purchase of this truck.

Short Answer

Expert verified

Truck amount is debited by $54,641, discount on note payable is debited by $25,359 and notes payable is credited by$80,000 to record the purchase of truck

Step by step solution

01

Calculation of present value of note

PresentValueofNotePayable=NotePayable×11+rN=$80,000×11.104=$54,641

02

Journal entry of purchase of truck

Date

Particulars

Debit ($)

Credit ($)

Trucks

$54,641

Discount on note payable ($80,000- $54,641)

$25,359

To Notes payable

$80,000

To record the purchase of truck

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Most popular questions from this chapter

Question: Burke Company has purchased two tracts of land. One tract will be the site of its new manufacturing plant, while the other is being purchased with the hope that it will be sold in the next year at a profit. How should these two tracts of land be reported in the balance sheet?

(Classification of Acquisition Costs) Selected accounts included in the property, plant, and equipment section of Lobo Corporation’s balance sheet at December 31, 2016, had the following balances.

Land

\( 300,000

Land improvements

140,000

Buildings

1,100,000

Equipment

960,000

During 2017, the following transactions occurred.

  1. A tract of land was acquired for \)150,000 as a potential future building site.
  2. A plant facility consisting of land and building was acquired from Mendota Company in exchange for 20,000 shares of Lobo’s common stock. On the acquisition date, Lobo’s stock had a closing market price of \(37 per share on a national stock exchange. The plant facility was carried on Mendota’s books at \)110,000 for land and \(320,000 for the building at the exchange date. Current appraised values for the land and building, respectively, are \)230,000 and \(690,000.
  3. Items of machinery and equipment were purchased at a total cost of \)400,000. Additional costs were incurred as follows.

Freight and unloading

\(13,000

Sales taxes

20,000

Installation

26,000

  1. Expenditures totaling \)95,000 were made for new parking lots, streets, and sidewalks at the corporation’s various plant locations. These expenditures had an estimated useful life of 15 years.
  2. A machine costing \(80,000 on January 1, 2009, was scrapped on June 30, 2017. Double-declining-balance depreciation has been recorded on the basis of a 10-year life.
  3. A machine was sold for \)20,000 on July 1, 2017. Original cost of the machine was \(44,000 on January 1, 2014, and it was depreciated on the straight-line basis over an estimated useful life of 7 years and a salvage value of \)2,000.

Instructions

(Round to the nearest dollar.)

a. Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2017.

Land Buildings

Land Improvements Equipment

(Hint: Disregard the related accumulated depreciation accounts.)

b. List the items in the fact situation that were not used to determine the answer to (a), showing the pertinent amounts and supporting computations in good form for each item. In addition, indicate where, or if, these items should be included in Lobo’s financial statements.

(Disposition of Assets) On April 1, 2017, Gloria Estefan Company received a condemnation award of \(430,000 cash as compensation for the forced sale of the company’s land and building, which stood in the path of a new state highway. The land and building cost \)60,000 and \(280,000, respectively, when they were acquired. At April 1, 2017, the accumulated depreciation relating to the building amounted to \)160,000. On August 1, 2017, Estafan purchased a piece of replacement property for cash. The new land cost \(90,000, and the new building cost \)400,000.

Instructions

Prepare the journal entries to record the transactions on April 1 and August 1, 2017.

Durler Company purchased equipment on January 2, 2013, for \(112,000. The equipment had an estimated useful life of 5 years with an estimated salvage value of \)12,000. Durler uses straight-line depreciation on all assets. On January 2, 2017, Durler exchanged this equipment plus \(12,000 in cash for newer equipment. The old equipment has a fair value of \)50,000.

Accounting

Prepare the journal entry to record the exchange on the books of Durler Company. Assume that the exchange has commercial substance.

Analysis

How will this exchange affect comparisons of the return on asset ratio for Durler in the year of the exchange compared to prior years?

Principles

How does the concept of commercial substance affect the accounting and analysis of this exchange?

Question: What are the major characteristics of plant assets?
See all solutions

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