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Chapter 18: Q18-22E (page 1038)

Cramer Corp. sells idle machinery to Enyart Company on July 1, 2017, for \(40,000. Cramer agrees to repurchase this equipment from Enyart on June 30, 2018, for a price of \)42,400 (an imputed interest rate of 6%).

Instructions

(a) Prepare the journal entry for Cramer for the transfer of the asset to Enyart on July 1, 2017.

(b) Prepare any other necessary journal entries for Cramer in 2017.

(c) Prepare the journal entry for Cramer when the machinery is repurchased on June 30, 2018.

Short Answer

Expert verified

Answer

Interest expense of the company is$1,200.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Journal Entries

In accounting, journal entries refer to the chronological recording of financial transactions of a business concern. Under such a process, transactions are presented in a tabular manner along with theexplanation of each accounting information.

02

Journal entry for transfer of asset

Date

Accounts and Explanation

Debit ($)

Credit ($)

2017

Jul 1

Cash

40,000

Liability to Enyart

40,000

(To record transfer of asset)

03

Preparation of additional journal entries for Cramer

Date

Accounts and Explanation

Debit ($)

Credit ($)

2017

Dec 31

Interest expense (40000*6%*6/12)

1,200

Liability to Enyart

1,200

(To record interest expense)

04

Journal entry for repurchase

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Jun 30

Liability to Enyart

42,400

Cash

42,400

(To record the purchase of machine)

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Most popular questions from this chapter

Archer Construction Company began work on a \(420,000 construction contract in 2017. During 2017, Archer incurred costs of \)278,000, billed its customer for \(215,000, and collected \)175,000. At December 31, 2017, the estimated additional costs to complete the project total $162,000. Prepare Archer’s journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method.

Explain the accounting for contract modifications.

Explain the accounting for sales with the right of return.

On June 3, 2017, Hunt Company sold to Ann Mount merchandise having a sales price of \(8,000 (cost \)6,000) with terms of n/60, f.o.b. shipping point. Hunt estimates that merchandise with a sales value of \(800 will be returned. An invoice totaling \)120 was received by Mount on June 8 from Olympic Transport Service for the freight cost. Upon receipt of the goods, on June 8, Mount returned to Hunt \(300 of merchandise containing flaws. Hunt estimates the returned items are expected to be resold at a profit. The freight on the returned merchandise was \)24, paid by Hunt on June 8. On July 16, the company received a check for the balance due from Mount.

Instructions

Prepare journal entries for Hunt Company to record all the events in June and July.

(Sales with Returns) On March 10, 2017, Steele Company sold to Barr Hardware 200 tool sets at a price of \(50 each (cost \)30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2017, Barr returned six tool sets and received a credit to its account.

Instructions

(a) Prepare journal entries for Steele to record (1) the sale on March 10, 2017, (2) the return on March 25, 2017, and (c) any adjusting entries required on March 31, 2017 (when Steele prepares financial statements). Steele believes the original estimate of returns is correct.

(b) Indicate the income statement and balance sheet reporting by Steele at March 31, 2017, of the information related to the Barr sales transaction.
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