Question

Connors Corporation acquired manufacturing equipment for use in its assembly line. Below are four independent situations relating to the acquisition of the equipment. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
A. The equipment was purchased on account for $25,000. Credit terms were 2/10, n/30. Payment was made within the discount period and the company records the purchases of equipment net of discounts.
B. Connors gave the seller a noninterest-bearing note. The note required payment of $27,000 one year from date of purchase. The fair value of the equipment is not determinable. An interest rate of 10% properly reflects the time value of money in this situation.
C. Connors traded in old equipment that had a book value of $6,000 (original cost of $14,000 and accumulated depreciation of $8,000) and paid cash of $22,000. The old equipment had a fair value of $2,500 on the date of the exchange. The exchange has commercial substance.
D. Connors issued 1,000 shares of its nopar common stock in exchange for the equipment. The market value of the common stock was not determinable. The equipment could have been purchased for $24,000 in cash.
Required:
For each of the above situations, prepare the journal entry required to record the acquisition of the equipment.

Answer 1

Answer:

Entries and their narrations are posted below

Explanation:

We will record assets and expenses on the debit as they increase during the year and will record liabilities and capital on the credit side as they increase during the year or vice versa.

Journal Entries  

                                                     Debit             Credit

A. The equipment was purchased on account for $25,000.

Equipment                                  $25,000

Accounts Payable                                              $25,000

B. Connors gave the seller a noninterest-bearing note. The note required payment of (27,000 x 1/(1+10%)

Equipment                                  $24,545

Discount on Notes Payable        $2,455

Note Payable                                                     $27,000

C. Connors traded in old equipment that had a book value of $6,000

Equipment New                           $24,500

Accumulated Depreciation          $8,000

Loss on Equipment                       $3,500

Cash                                                                $22,000

Equipment Old                                                $14,000

D.Connors issued 1,000 shares of its no-par common stock in exchange for the equipment

Equipment                                    $24,000

Common Stock                                                $24,000

Answer 2

A.

Journal entry 25,000/(1-.02) = 24,500

Debit: Equipment - new 24,500

Credit: Accounts Payable   24,500

B. 27,000/(1+.10)=24,545 then 27,000-24,545 = 2,455

Debit: Equipment - new 24,545

Debit: Discount on Notes Payable 2,455

Credit: Notes Payable   27,000

C.

Debit: Equipment - new 24,500 (22,000+2,500)

Debit: Accumulated Depreciation 8,000

Debit: Loss on Exchange of assets 3,500 (6,000-2,500)

Credit: Cash 22,000

Credit: Equipment - old 14,000

D.

Debit: Equipment 24,000

Credit: Common Stock  24,000