Shamrock Corporation operates a retail computer store. To
improve delivery services to customers, the company purchases four
new trucks on April 1, 2020. The terms of acquisition for each
truck are described below.
1. | Truck #1 has a list price of $29,550 and is acquired for a cash payment of $27,383. | |
2. | Truck #2 has a list price of $31,520 and is acquired for a down payment of $3,940 cash and a zero-interest-bearing note with a face amount of $27,580. The note is due April 1, 2021. Shamrock would normally have to pay interest at a rate of 9% for such a borrowing, and the dealership has an incremental borrowing rate of 8%. | |
3. | Truck #3 has a list price of $31,520. It is acquired in exchange for a computer system that Shamrock carries in inventory. The computer system cost $23,640 and is normally sold by Shamrock for $29,944. Shamrock uses a perpetual inventory system. | |
4. | Truck #4 has a list price of $27,580. It is acquired in exchange for 920 shares of common stock in Shamrock Corporation. The stock has a par value per share of $10 and a market price of $13 per share. |
Prepare the appropriate journal entries for the above transactions
for Shamrock Corporation. (Round present value factors
to 5 decimal places, e.g. 0.52587 and final answers to 2 decimal
places, e.g. 52.75. 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.)
Based on the information available in the question, we can answer as follows:-
Particulars | Amount | Amount | |
1.) | Trucks | 27,383 | |
To Cash a/c | 27,383 | ||
(To record the purchase of Trucks) |
Particulars | Amount | Amount | |
2.) | Trucks | 29,242 | |
Discount on Notes Payable A/c | 2,278 | ||
To Cash a/c | 3,940 | ||
To Notes Payable a/c | 27,580 | ||
(To record the purchase of Trucks) |
The value of trucks is calculated as follows:-
Present value of $27,580 at 9% for 1 year = $27,580 * PVIF(9%, 1 year)
Present value = $27,580*0.9174
Present value = $25,302
Trucks = $25,302 + $3,940
Trucks = $29,242
Particulars | Amount | Amount | |
3.) | Trucks | 29,944 | |
Cost of goods sold | 23,640 | ||
To Inventory a/c | 23,640 | ||
To Sales Revenue a/c | 29,944 | ||
(To record the exchange and purchase of Trucks) |
Particulars | Amount | Amount | |
4.) | Trucks | 11,960 | |
To Common stock($10 * 920 shares) | 9,200 | ||
To Paid in capital in excess of common stock($3 * 920 shares) | 2,760 | ||
(To record the purchase of Trucks) |
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