Crane Engineering Corporation purchased conveyor equipment with a list price of $48,700. 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 $3,409, 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 $2,400 (initial cost $41,800) and paid $42,300 in cash one month after the purchase. The old equipment could have been sold for $4,900 at the date of trade but was accepted for a trade-in allowance of $6,400 on the new equipment. | |
3. |
Geddes gave the vendor a $9,800 cash down payment and a 10% note payable with blended principal and interest payments of $19,450 each, due at the end of each of the next two years. (a) |
Date | Account Title and Explanation | Debit | Credit |
1) | Equipment ($48,700 + $3409) | $ 52,109.00 | |
GST Receivable ($48,700 x 5%) | $ 2,435.00 | ||
Accounts Pyable | $ 54,544.00 | ||
(To record purchase of equipment on credit.) | |||
Accounts Payable | $ 54,544.00 | ||
Finance Expense | $ 545.44 | ||
Equipment ($54,544 X .01) | $ 545.44 | ||
Cash | $ 54,544.00 | ||
(To record payment to the vendor.) | |||
2) | Equipment (new) (42300 + 4900) | $ 47,200.00 | |
Accumulated Depreciation - Equipment (41800 - 2400) | $ 39,400.00 | ||
Gain on Disposal of Equipment. | $ 2,500.00 | ||
Accounts Payable | $ 42,300.00 | ||
Equipment (old) | $ 41,800.00 | ||
(To record exchange of equipment.) | |||
Accounts Payable | $ 42,300.00 | ||
Cash | $ 42,300.00 | ||
(To record payment to the vendor.) | |||
3) | Equipment | $ 43,556.20 | |
Cash | $ 9,800.00 | ||
Notes Payable (PV(10%,2,-19450) | $ 33,756.20 | ||
(To record purchase of equipment on credit. | |||
Interest Expense ($33,756.20 x 10%) | $ 3,375.62 | ||
Notes Payable | $ 16,074.38 | ||
Cash | $ 19,450.00 | ||
First Payment on Note-(To record payment to the vendor.) | |||
Interest Expense ($33,756.20 - 16074.38 x 10%) | $ 1,768.18 | ||
Notes Payable | $ 17,681.82 | ||
Cash | $ 19,450.00 | ||
Second Payment on Note-(To record payment to the vendor.) |
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