Question

1. On December 1, 2018, the company purchased a piece of equipment costing $28,000. paying $4,000 and financing the remainder. The equipment had an expected life of 5 years and a salvage value of $4,000. Interest on the note was at 6% and both principal and interest are due on Feb 28, 2019. Prepare the journal entry to reflect the purchase only. 2./3. What journal entries are required at the end of December, 2018 with regard to the equipment purchased in 1. above. 4. On October 31, 2020, the company decided that the piece of equipment purchased in 1 above would actually last 6 years in total and have a salvage value of $2,000. What journal entry would they make with regard to this piece of equipment for the month of October, 2020? 5. The company paid $6,000 in cash for an insurance premium on December 1, 2018. The premium was for a year.

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Answer 1

Date	Accounts Titles and Explanation	Debit	Credit
2018
Dec 1	Equipment	$28,000
	Cash		$4,000
	Notes Payable		$24,000
	(To record acquired equipment)
Dec 31	Interest Expense	$120		($24,000 x 6% x 1/12)
	Interest Payable		$120
	(To record accrued interest)
Dec 31	Depreciation Expense	$400		($28,000 - $4,000)/5 x 1/12
	Accumulated Depreciation - Equipment		$400
	(To record depreciation expense)
2020
Dec 31	Depreciation Expense	$5,200		Cost	$28,000
	Accumulated Depreciation - Equipment		$5,200	Less: Depreciation ($400 + $4,800)	$5,200
	(To record depreciation expense)			Carrying value as on Jan 01, 2020	$22,800
				Less: Depreciation	$5,200
				($22,800 - $2,000)/4 years
Dec 31	Insurance Expense	$500		($6,000/12)
	Prepaid Insurance		$500