Question

On January 1, 2016, Lisa Company sold machinery with a book value of $118,000 to Mark...

On January 1, 2016, Lisa Company sold machinery with a book value of $118,000 to Mark Company. Mark signed a $180,000 non-interest-bearing note, payable in three $60,000 annual installments on December 31, 2016, 2017, and 2018. The fair value of the machinery was $149,211.12 on the date of sale. The machinery had been purchased by Lisa at a cost of $160,000. Required: 1. Prepare all the journal entries on Lisa’s books for January 1, 2016, through December 31, 2018. 2. Prepare the notes receivable portion of Lisa’s balance sheet on December 31, 2016 and 2017.

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Answer #1

Answer 1.

Date Accounts Titles & Explanation Debit Credit
January 1, 2016 Notes Receivable 180,000
Accumulated Depreciation [$160,000- $118,000] 42,000
Machinery 160,000
Gain on Selling the Machinery [balancing figure] 62,000
December 31,2016 Cash 60,000
Notes Receivable 60,000
(To record the first installment of payment on Notes)
December 31, 2017 Cash 60,000
Notes Receivable 60,000
(To record the second installment of payment on Notes)
December 31, 2018 Cash 60,000
Notes Receivable 60,000
(To record the third installment of payment on Notes)

Answer 2.

Particular December 31, 2016 December 31, 2017
Notes Receivable $120,000 [$180,000 - $60,000] $60,000 [$180,000 - $60,000 - $60,000]
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