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. (If no entry is required for a transaction, select "No journal entry required" in the first account field.) (Show your work)

Answer 1

Answer and Explanation:

The journal entries are shown below:

A. Equipment    $24,500 ($25,000 × 98%)  

        To Accounts Payable  $24,500

(Being the equipment is purchase on account)

B. Equipment $24,545

       Discount on Notes Payable $2,455

                   To Note Payable $27,000

(Being note payable is recorded)

C. New Equipment $24,500

Accumulated Depreciation $8,000

Loss on Equipment $3,500  

         To Cash $22,000

         To Old Equipment  $14,000

(Being equipment is recorded)

D. Equipment $24,000

            To Common Stock $24,000

(Being equipment purchased)