Question

Pharoah Engineering Corporation purchased conveyor equipment with a list price of $51,700. 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 $3,619, both based on the purchase price. The vendor’s credit terms were 2/10, n/30.
2.		Geddes traded in equipment with a book value of $2,500 (initial cost $40,400) and paid $40,900 in cash one month after the purchase. The old equipment could have been sold for $9,300 at the date of trade but was accepted for a trade-in allowance of $10,800 on the new equipment.
3.		Geddes gave the vendor a $10,500 cash down payment and a 9% note payable with blended principal and interest payments of $20,600 each, due at the end of each of the next three years.

Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.


(a)

Prepare the general journal entries to record the acquisition and the subsequent payment, including any notes payable, in each of the three independent cases above. For item 3, use a table, financial calculator, or Excel. (Credit account titles are automatically indented when the 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. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.)

	Account Titles and Explanation	Debit	Credit
1.
	(To record purchase of equipment on credit.)
	(To record payment to the vendor.)
2.
	(To record exchange of equipment.)
	(To record payment to the vendor.)
3.
	(To record purchase of equipment on credit.)
	First Payment on Note
	(To record payment to the vendor.)
	Second Payment on Note
	(To record payment to the vendor.)

Answer 1

Note:	Following calculations are made on the basis of best assumptions can be made as per the information available in given problems. The answer might be different as answers provided by other expert on the basis of different assumptions taken by other expert.
Ans (a)
		Journal Entries	Amount in "$"
	Case No.	Account Titles and Explanation	Debit	Credit
	1.	Conveyor Equipment	51700
		GST and Provincial Sales Tax (Recoverable)	3619
		To Vendor Account		55319
		(Being Equipment purchased on credit and GST and provincial sale tax to vendor which are recoverable from the government )
		Vendor Account	55319
		To Cash account		55319
		( Being amount paid to Vendor in 25 days and no discount taken since payment period exceed 10 days)
	2.	Conveyor Equipment	51700
		To Old Equipment		2500
		To Vendor Account		40900
		To Gain on Old Equipment sold (10800-2500)		6800
		To Allowances on Purchase of Equipment		1500
		(Being New Equipment purchased in exchange of old Equipment to the extent of 10800 and balance shall be payable within one month)
		Vendor account	40900
		To Cash		40900
		(Being amount paid to Vendor in cash for equipment purchased)
		Gain on Old Equipment Purchased	6800
		To Profit and loss statement		6800
		(Being profit on sale of equipment recorded)
		Allowance on Purchase of Equipment	1500
		To Conveyor equipment		1500
		(being discount on purchase of equipment recorded)

Case-3. Calculation Table of interest and principle amount

Year	Amount Remaining	Installment	Interest@9%	Principle Payment	Closing Balance
1	41200.00000	20600.00000	3708.00000	16892.00000	24308.00000
2	24308.00000	20600.00000	2187.72000	18412.28000	5895.72000
3	5895.72000	20600.00000	530.61480	20069.38520	0.00000
			6426	55374

	Journal Entries
	Account Titles and Explanation	Debit	Credit
3.	Conveyor Equipment	65874
	Finance Charges	6426
	To Cash		10500
	To Vendor Account payable (20600*3)		61800
	(being Equipment purchased in which cash payment made for 10500 and balance amount financed from such vendor in 9% not payable with blended interest and principle amount)
	Profit and loss statement	6426
	To Finance Charges		6426
	(being amount transfer to profit and loss statement)