Question

On January 25, 2014, Mary Hinton, who owns The Candy Company, bought an auto for business purposes. The total cost was $25,200. She paid the down payment of $5,000 with a personal check (investment in the business) and financed the balance with an interest-free note that will be paid by the business.

Required:

a. Record the purchase transaction in the journal.

b. Prepare the journal entry to record the payment of the note on April 24, 2016

c. What GAAP assumption applies to this case

On January 25, 2014, Mary Hinton, who owns The Candy Company, bought an auto for business purposes. The total cost was $25,200. business) and financed the balance with an interest-free note that will be paid by the business. 2. She paid the down payment of $5,000 with a personal check (investment in the Required a. Record the purchensaction in the journal. b. Prepare the journal entry to record the payment of the note on April 24, 2016 c. What GAAP assumption applies to this case Date Account Titles and Explanation Debit Credit

Answer 1

Solution:

S.No	Particulars	Debit ($)	Credit ($)
a.	Equipment	$25,200
	Marry Hinto Capital		$5,000
	Notes payable		$20,200
	(Being auto purchased for business)
b.	Notes payable	$20,200
	cash		$20,200
	(Being notes payable for cash)
c.	Economic Entity Assumption. As the equipment purchased is for business hence it is identified with the candy company.