Answer:
A: we reocrd at cost, which is the discounted price:
40,000 x (1 - 2%) = 39,200
Equipment 39,200 debit
Cash 39,200 credit
B: we discount the note implicit interest:
42,000 / 1.12 = 37,500
Equipment 37,500 debit
Note payables 37,500 credit
C: Because; there is commercial substance we recognize the loss on the old equipment as the book value is 13,500 while it is being traded at 8,500
We write off, post the cash used and the loss. The new equipment enter the accounting for the difference to blaance the entry:
equipment 45,500 debit
acc depreciation 15,500 debit
loss at disposal 5,000 debit
cash 37,000 credit
equipment 29,000 credit
D: we evaluate the equipment at fair value
Equipment 40,000 debit
common stock 2,500 credit
additional paid-in 37,500 credit
We now it is no-par therefore there is an additional paid in.
<em>As we aren't provide with the face value we assume is 1 dollar.</em>
Explanation:
