Whispering Engineering Corporation purchased conveyor equipment with a list price of $9,600. ...
Question:
Whispering Engineering Corporation purchased conveyor equipment with a list price of $9,600.
Presented below are three independent cases related to the equipment.
a) Whispering paid cash for the equipment 8 days after the purchase. The vendor's credit terms are 2/10, n/30. Assume that equipment purchases are initially recorded gross.
b) Whispering traded in equipment with a book value of $1,800 (initial cost $8,800) and paid $8,600 in cash one month after the purchase. The old equipment could have been sold for $500 at the date of trade. (The exchange has commercial substance.)
c) Whispering gave the vendor a $9,900 zero-interest-bearing note for the equipment on the date of purchase. The note was due in one year and was paid on time.
Assume that the effective-interest rate in the market was 9%.
Prepare the general journal entries required to record the acquisition and payment in each of the independent cases above.
Journal Entries:
Journal entries are the first step of the accounting process and record certain transactions for bookkeeping. For all journal entries, both debits and credits must be present so that when all entries are taken into account, they balance to a total of $0.
Answer and Explanation: 1
| Date | Account titles | Debit | Credit |
| a) | Equipment | 9,600 | |
| Accounts Payable | 9,600 | ||
| (To record Equipment purchased on Account) | |||
| Accounts Payable | 9,600 | ||
| Cash | 9,408 | ||
| Equipment ($9600*2%) | 192 | ||
| (To record payment on Account) | |||
| b) | Equipment(New) | 9,100 | |
| Loss on Disposal of Equipment ($1800-$500) | 1,300 | ||
| Accumulated Depreciation Equipment | 7,000 | ||
| Accounts Payable | 8,600 | ||
| Equipment (Old) | 8,800 | ||
| (To record Equipment purchased on Account) | |||
| Accounts Payable | 8,600 | ||
| Cash | 8,600 | ||
| (To record payment on Account) | |||
| c) | Equipment | 9,009 | |
| Discount on Notes Payable | 891 | ||
| Notes Payable | 9,900 | ||
| (To record purchase of Equipment with note) | |||
| Interest expense | 891 | ||
| Notes Payable | 9,900 | ||
| Discount on Notes Payable | 891 | ||
| Cash | 9,900 | ||
| (To record payment of note) |
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Journal Entries and Trial Balance in Accounting
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Chapter 3 / Lesson 10
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Discover the meaning of a journal entry and a trial balance, types of journal entries, how a general ledger differs from a trial balance, and some examples.
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