Question

Oriole Engineering Corporation purchased conveyor equipment with a list price of $54,600. Three independent cases that are related to the equipment follow. Assume that the equipment purchases are recorded gross.

1.Geddes paid cash for the equipment 25 days after the purchase, along with 5% GST (recoverable) and provincial sales tax of $3,822, both based on the purchase price. The vendor’s credit terms were 1/10, n/30.

2.Geddes traded in equipment with a book value of $2,300 (initial cost $39,000) and paid $39,900 in cash one month after the purchase. The old equipment could have been sold for $13,200 at the date of trade but was accepted for a trade-in allowance of $14,700 on the new equipment.

3.Geddes gave the vendor a $10,200 cash down payment and a 8% note payable with blended principal and interest payments of $22,200 each, due at the end of each of the next two years.

Prepare the general journal entries to record the acquisition and the subsequent payment, including any notes payable, in each of the three independent cases above.

1.

3 accounts (To record purchase of equipment on credit.)

3 accounts (To record payment to the vendor.)

2.

5 accounts (To record exchange of equipment.)

2 accounts ((To record payment to the vendor.))

3

3 accounts (To record purchase of equipment on credit.)

First Payment on Note-

3 accounts (To record payment to the vendor.)

Second Payment on Note-

3 accounts (To record payment to the vendor.)

Answer 1

Solution - Question No.1

Details	Debit	Credit
Equipment	$61152
Term discount		$546
Accounts Payable		$60606
(The credit purchase of equipment recorded with provision for 1% discount allowance)
Details	Debit	Credit
Accounts Payable	$61152
Accounts Payable		$546
Terms discount	$546
Cash		$61152
(entry for payment made for equipment with the reversal of 1% discount allowance )

Solution - Question No.2

Details	Debit	Credit
New Equipment	$54600
Old Equipment		$2300
Trade-in allowance		$1500
Profit on exchange of old equipment		$10900
Accounts Payable		$39900
(the exchange of old with new equipment and profit on such exchange accounted)
Details	Debit	Credit
Accounts Payable	$39900
Cash		$39900
(entry for payment made for equipment with was exchanged for old)

Solution - Question No.3

Details	Debit	Credit
Equipment	$50940
Notes Payable @ 8% - 1st installment		$20370
Notes Payable @ 8% - 2nd installment		$20370
Cash		$10200
(The equipment purchased partly with cash and notes payable accounted)
Details	Debit	Credit
Notes Payable @ 8% - 1st installment	$20370
Interest paid (8% on Notes payable)	$1630
Cash		$22000
(first payment on Note paid with interest)
Details	Debit	Credit
Notes Payable @ 8% - 2nd installment	$20370
Interest paid (8% on Notes payable)	$1630
Cash		$22000
(second payment on Note paid with interest)