Question

ane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000. Presented below are three independent cases related to the equipment.

(a)		Geddes paid cash for the equipment 8 days after the purchase. The vendor’s credit terms are 2/10, n/30. Assume that equipment purchases are initially recorded gross.
(b)		Geddes traded in equipment with a book value of $2,000 (initial cost $8,000), and paid $9,500 in cash one month after the purchase. The old equipment could have been sold for $400 at the date of trade. (The exchange has commercial substance.)
(c)		Geddes gave the vendor a $10,800 zero-interest-bearing note for the equipment on the date of purchase. The note was due in one year and was paid on time. Assume that the effective-interest rate in the market was 9%.

Prepare the general journal entries required to record the acquisition and payment in each of the independent cases above. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
(a)
	(To record the purchase of equipment on account.)
	(To record the payment on account.)
(b)
	(To record the purchase of equipment on account.)
	(To record the payment on account.)
(c)
	(To record the purchase of equipment with a note.)
	(To record the payment of the note.)

Answer 1

(a)	Equipment	$ 10,000.00
	Accounts Payable		$ 10,000.00
	(To record the purchase of equipment on account.)
	Account Payables	$ 10,000.00
	Equipment (10000 x 2%)		$      200.00
	Cash		$   9,800.00
	(To record the payment on account.)
(b)	Equipment (9500 + 400)	$   9,900.00		Cost	8000
	Loss on Disposal of Equipment	$   1,600.00		Accumulated Depreciation	6000
	Accumulated Depreciation	$   6,000.00		Book value	2000
	Accounts Payable		$   9,500.00	Market value	400
	Equipment		$   8,000.00	Loss	1600
	(To record the purchase of equipment on account.)
	Account Payables	$   9,500.00
	Cash		$   9,500.00
	(To record the payment on account.)
(c)	Equipment (PV(9%,1,0,-10800)	$9,908.26
	Discount on Note Payable	$      891.74
	Note Payable		$ 10,800.00
	(To record the purchase of equipment with a note.)
	Interest Expenses	$      891.74
	Notes Payable	$ 10,800.00
	Discount on note payable		$      891.74
	Cash		$ 10,800.00
	(To record the payment of the note.)