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.)
The equipment was purchased on account for $29,000. 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.
Connors gave the seller a noninterest-bearing note. The note required payment of $31,000 one year from date of purchase. The fair value of the equipment is not determinable. An interest rate of 11% properly reflects the time value of money in this situation.
Connors traded in old equipment that had a book value of $8,000 (original cost of $18,000 and accumulated depreciation of $10,000) and paid cash of $26,000. The old equipment had a fair value of $4,100 on the date of the exchange. The exchange has commercial substance.
Connors issued 2,000 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 $28,000 in cash.
Required:
For each of the above situations, prepare the journal entry
required to record the acquisition of the equipment. (If no
entry is required for a transaction/event, select "No journal entry
required" in the first account field. Round your answers to the
nearest whole dollar amount.)
Journal entries
Particulars | Debit Amount ($) | Credit Amount($) | |
A | Equipment | 28,420 | |
Accounts payable | 28,420 | ||
(amount paid within discount period as 29,000*0.98) | |||
B | Equipment | 27,928 | |
Discount on notes payable | 3,072 | ||
Note payable | 31,000 | ||
(present value of note payable=31,000*PVIF(11%,1year) | |||
(31,000*0.9009=$27,928) | |||
C | Equipment(new) | 28,420 | |
Accumulated depreciation | 10,000 | ||
Loss on equipment | 5,580 | ||
Cash | 26,000 | ||
Equipment (old) | 18,000 | ||
D | Equipment | 28,000 | |
Common stock | 28,000 |
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