Question

Scenario:

As chief accountant for a small business, you must determine how to record the acquisition of a new piece of equipment. The equipment is semi-custom so there is no direct comparable equipment, but the manufacturer estimates the value of the equipment to be $385,000. In order to purchase the equipment, you sign 4 year, $380,000 note with an interest rate of 3.5%. Since you are a small company, there are no comparable bonds, but you have a BBB bond rating (see Footnote 1). The transaction took place on March 16, 2018.

What is the journal entry to record the acquisition of the equipment?

Scenario: As chief accountant for a small business, you must determine how to record the acquisition of a new piece of equipment. The equipment is semi-custom so there is no direct comparable equipment, but the manufacturer estimates the value of the equipment to be $385,000. In order to purchase the equipment, you sign 4 year, $380,000 note with an interest rate of 3.5%. Since you are a small company, there are no comparable bonds, but you have a BBB bond rating (see Footnote 1). The transaction took place on March 16, 2018 What is the journal entry to record the acquisition of the equipment? Be sure to document your calculations and research (including following the IRAC formula - it would be most appropriate to include your calculations in the Conclusion section after you determine the appropriate treatment). (huge hint: you may want to look into 'Imputation of Interest")

Answer 1

А в C D E F 2 Note Value 380,000 Interest 3 Rate 3.50% Cash 4 Year Outflows 1 -13,300 -13,300 -13,300 4 13,300 4 -380,000 10 Total -406,600 11 Present Present Value Factor Value 0.9662 -12,850 0.9335 -12,416 0.9019 -11,996 0.8714 11,590 0.8714 -331,148 -356,820 Investment to be recorded at the value estimated by 12 the manufacturer. 13 14 Entry to be recorded at the time of acquisition 15 385,000 Dr 16 Investment Profit & 17 Loss 18 Vendor 19 28,180 Cr 356,820 Cr