Blossom Engineering Corporation purchased conveyor equipment
with a list price of $9,000. Presented below are three independent
cases related to the equipment.
(a) | Blossom 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) | Blossom traded in equipment with a book value of $1,800 (initial cost $7,600), and paid $8,600 in cash one month after the purchase. The old equipment could have been sold for $500 at the date of trade. (The exchange has commercial substance.) | |
(c) | Blossom gave the vendor a $10,600 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 8%. |
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.)
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Blossom Engineering Corporation | |||
Answer a | Amount $ | ||
List Price | 9,000.00 | ||
Discount if paid within 10 days | 2% | ||
Discount amount | 180.00 | ||
Net paid | 8,820.00 | ||
Journal Entry | |||
Account | Debit $ | Credit $ | |
When conveyor purchased | Conveyor equipment | 9,000.00 | |
Accounts Payable | 9,000.00 | ||
When amount paid | Accounts Payable | 9,000.00 | |
Bank | 8,820.00 | ||
Discount received | 180.00 | ||
Answer b | Amount $ | ||
Sale value of old equipment | 500.00 | ||
Cash paid | 8,600.00 | ||
Value of new equipment | 9,100.00 | ||
Journal Entry | |||
Account | Debit $ | Credit $ | |
When conveyor purchased | Conveyor equipment | 9,100.00 | |
Old Conveyor equipment | 500.00 | ||
Accounts Payable | 8,600.00 | ||
When amount paid | Accounts Payable | 8,600.00 | |
Bank | 8,600.00 | ||
Answer c | Amount $ | ||
Interest-bearing note | 10,600.00 | ||
Effective-interest rate | 8% | ||
Principle (cost of conveyor) | 9,814.81 | ||
Finance Charge | 785.19 | ||
Journal Entry | |||
Account | Debit $ | Credit $ | |
When conveyor purchased | Conveyor equipment | 9,814.81 | |
Finance Charge | 785.19 | ||
Note Payable | 10,600.00 | ||
When amount paid | Note Payable | 10,600.00 | |
Bank | 10,600.00 | ||
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