Question

Hi, i've posted this question couple times but the no solutions seems to be correct for B,C and D.

Recording Purchase of Equipment through Debt and Equity On January 1, 2020, Sidelines Company purchases equipment with an estimated 6-year useful life by making a $14,000 cash payment and issuing a noninterset-bearing note for $48,000 due in two years. The fair value of the the equipment is unknown. An 11% annual interest rate is typical of this transaction. The company uses the effective interest method to amortize interest expense and the straight-line method to estimate depreciation expense. a. Prepare the entry to record the purchase on January 1, 2020. b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. C. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. e. Assume instead that Sidelines exchanged 1,000 shares of its own $10 par value common stock along with $14,000 cash for the equipment. At the date of the exchange, the stock was trading on the market at $40 per share. Prepare the entry to record the purchase of equipment. Purchase of Equipment with Debt Purchase of Equipment through Equity Dr. Cr. a. Prepare the entry to record the purchase on January 1, 2020. Date Account Name Jan. 1, 2020 Equipment Discount on Note Payable 0 52,958 9,042 0 Cash 14,000 48,000 Note Payable ✓ b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. Date Account Name Dr. Cr. Dec 31, 2020 Interest Expense 8,826 x 0 Discount on Note Payable 0 4,521 x To record interest. Dec 31, 2020 Depreciation Expense 4,285 x Equipment X 8,286 x To record depreciation.

Answer 1

Answer(b) Date Dec 31 2020 Credit Account Name Interest Expense (11% of $38,958) Discount on Notes Payable Debit $4,285 $4,285 Dec, 31 2020 $8,826 Depreciation Expense Accumulated Depreciation $8,826 Answer(c) Balance Sheet December 31 2020 Asssets Equipment, net Liabilities Notes Payable, net $44,132 $43,243 Working note: Equipment, net $52,958 - $8,826 $44,132 Notes Payable, net $38,958-$4,285 $43,243 Answer(d) Date Dec 31 2021 Credit Account Name Interest Expense ($9,042-$4,285) Discount on Notes Payable Debit $4,757 $4,757 Dec 31 2021 $48,000 Notes Payable Cash $48,000 Dec, 31 2021 $8,826 Depreciation Expense Accumulated Depreciation $8,826