Respuesta :
Answer:
We calculate PV of the non interest bearing note payable
PV = FV / (1 + i%)^n
When FV= $ 48,000, i = 11% n = 2years
PV = 48,000 / (1+11%)^-2
PV = 48,000 / 1.11^-2
PV = 48,000 * 0.8116
PV = 38,957.8
PV = $38,958
Cost of asset = Down payment in cash + PV of note payable
= $14,000 + $38,958
= $52,958
a) Journal entry to record the purchase on January 1, 2020
Description Debit Credit
Equipment $52,958
Discount on note payable $9,042
Cash $14,000
Notes Payable $48,000
b. Entry on December 31, 2020 to record Interest Expense
Interest expense = $9,042
For Year 1 = $9,042 / 2 = $4,521
Journal Entry
Description Debit Credit
Interest Expense $4,521.00
Discount on Notes Payable $4,521.00
Entry on December 31, 2020 to record Depreciation Expense
Depreciation based on Straight Line Method = (Cost of asset - SV) / Life of asset
= (52,958 - 0) /6
= $8,826
Journal Entry
Description Debit Credit
Depreciation $8,286
Equipment $8,286
c. Balance sheet presentation
Liabilities Amount ($)
Notes payable $48,000
Less: Discount on Notes ($4,521) $43,479
Assets
Fixed asset
Equipment $52,958
Less: Depreciation ($8,286) $44,672
d) Entry on December 31, 2021, to record interest expense
Journal Entry
Description Debit Credit
Interest Expense $4,521
Discount on Notes Payable $4,521
Entry on December 31, 2021, to record Depreciation
Journal Entry
Description Debit Credit
Depreciation $8,286
Equipment $8,286
Entry on December 31, 2021, to record payment of the note
Journal Entry
Description Debit Credit
Notes Payable $48,000
Cash $48,000
e Journal Entry
Description Debit Credit
Equipment $54,000
Cash $14,000
Common stock* $10,000
Paid-in capital in excess of $30,000
par value-common stock
(To record the purchase of equipment)
Workings
Common stock = 1,000 shares * $10 = $10,000
**Paid-in capital in excess of par value-common stock = [1000 x ($40 - $10)] = 1000 x $30 = $30000
Answer:
a. Prepare the entry to record the purchase on January 1, 2020.
January 1, 2020, equipment purchased
Dr Equipment 52,958
Dr Discount on notes payable 9,042
Cr Cash 14,000
Cr Notes payable 48,000
the present value of the notes payable = $48,000 / 1.11² = $38,957.88 ≈ $38,958. The discount on notes payable = $48,000 - $38,958 = $9,042
b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense.
1) December 31, 2020, accrued interest on notes payable
Dr Interest expense 4,285
Cr Discount on notes payable 4,285
interest expense = ($48,000 - $9,042) x 11% = $4,285.38 ≈ $4,285
2) December 31, 2020, depreciation expense
Dr Depreciation expense 8,826
Cr Accumulated depreciation - equipment 8,826
depreciation expense = $52,958 / 6 = $8,826.33 ≈ $8,826
c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020.
Assets:
Equipment (net) $44,132
Liabilities:
Notes payable $43,243
d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense.
1) December 31, 2021, accrued interest on notes payable
Dr Notes payable 48,000
Dr Interest expense 4,757
Cr Cash 48,000
Cr Discount on notes payable 4,757
interest expense = $9,042 - $4,285 = $4,757
2) December 31, 2021, depreciation expense
Dr Depreciation expense 8,826
Cr Accumulated depreciation - equipment 8,826
depreciation expense = $52,958 / 6 = $8,826.33 ≈ $8,826
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.
January 1, 2020, equipment purchased in exchange of common stock
Dr Equipment 54,000
Cr Cash 14,000
Cr Common stock 10,000
Cr Additional paid in capital 30,000
