Question

Exercise 10-19 (Algo) Acquisition cost; multiple methods (LO10-1, 10-3, 10-4, 10-6] : 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.) : 1. The equipment was purchased on account for $37.000. Credit terms were 3/10. n/30. Payment was made within the discount period and the company records the purchases of equipment net of discounts. 2 Connors gave the seller a noninterest-bearing note. The note required payment of $39.000 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. 3. Connors traded in old equipment that had a book value of $12.000 (original cost of $26.000 and accumulated depreciation of $14.000) and paid cash of $34,000. The old equipment had a fair value of $7,300 on the date of the exchange. The exchange has commercial substance. : 4. Connors issued 1.500 shares of its no-par common stock in exchange for the equipment. The market value of the common stock was not determinable. The equipment could have been purchased for $36.000 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.) View transaction list Journal entry worksheet 2 3 4 Record the purchase of equipment on account. Note: Enter debits before credits. Transaction General Journal Debit Credit - Record entry Clear entry View general journal

Answer 1

1)

Equipment account Debit 37000

Supplier account Credit 37000

Supplier account Debit 37000

Cash discount Credit 1110

Bank account Credit 35890

Cash discount Debit 1110

Equipment account Credit 1110

2) The present value of the note is 39000 / 1.1 = 35455

Equipment account Debit 35455

Interest payable on maturity of note   Debit 3545

Non interest bearing note Credit 39000

3)

New equipment account Debit 41300

Impairment loss of old equipment Debit 4700

Old equipment account Credit 12000

Bank account Credit 34000

4)

Equipment account Debit 36000

Common stock Credit 36000