On January 1, Vale Inc. acquires equipment with a 10-year useful life by issuing a two-year, zero-interest bearing installment note payable. The market rate is 14% for similar transactions. Terms are $19,600 cash payment immediately plus payments of $14,000 cash at the end of each of the next two years. The company uses the effective interest method to amortize any discount on note payable and the straight-line method to record depreciation expense. Required a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. d. Assume instead that Vale exchanged 280 shares of its own $1 par common stock along with $19,600 cash for the equipment. The stock was not actively traded, but the equipment was estimated to have a fair value at the date of acquisition of $44,800. Prepare the entry to record the purchase. Purchase of Equipment with Debt Purchase of Equipment with Equity a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. Note: Round each of your answers to the nearest whole number.
On January 1, Vale Inc. acquires equipment with a 10-year useful life by issuing a two-year, zero-interest bearing installment note payable. The market rate is 14% for similar transactions. Terms are $19,600 cash payment immediately plus payments of $14,000 cash at the end of each of the next two years. The company uses the effective interest method to amortize any discount on note payable and the straight-line method to record depreciation expense. Required a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. d. Assume instead that Vale exchanged 280 shares of its own $1 par common stock along with $19,600 cash for the equipment. The stock was not actively traded, but the equipment was estimated to have a fair value at the date of acquisition of $44,800. Prepare the entry to record the purchase. Purchase of Equipment with Debt Purchase of Equipment with Equity a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. Note: Round each of your answers to the nearest whole number.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Purchase of Equipment with Debt
a. Prepare the entry to record the purchase of this equipment.
b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense.
c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense.
Note: Round each of your answers to the nearest whole number.
Date
a. Jan. 1, Year 1
b. Dec. 31, Year 1
Dec. 31, Year 1
Dec. 31, Year 1
c. Dec. 31, Year 2
Dec. 31, Year 2
Dec. 31, Year 2
To record interest
Purchase of Equipment with Equity
To record the purchase of equipment
Account Name
To record payment on note
To record depreciation
To record interest
To record payment on note
To record depreciation
>
>
> >
>
>
>
Dr.
0
0
0
0
0
0
0
0
O
O
0
0
0
0
0
0
Cr.
0
0
0
0
0
0
0
0
0
0
O
0
0
0
0
0
Transcribed Image Text:Recording Purchase of Equipment through Debt and Equity
On January 1, Vale Inc. acquires equipment with a 10-year useful life by issuing a two-year, zero-interest bearing installment note payable. The market rate is 14% for similar transactions. Terms are $19,600 cash payment immediately plus payments of $14,000 cash at
the end of each of the next two years. The company uses the effective interest method to amortize any discount on note payable and the straight-line method to record depreciation expense.
Required
a. Prepare the entry to record the purchase of this equipment.
b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense.
c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense.
d. Assume instead that Vale exchanged 280 shares of its own $1 par common stock along with $19,600 cash for
the equipment. The stock was not actively traded, but the equipment was estimated to have a fair value at the date
of acquisition of $44,800. Prepare the entry to record the purchase.
Purchase of Equipment with Debt
Purchase of Equipment with Equity
a. Prepare the entry to record the purchase of this equipment.
b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense.
c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense.
Note: Round each of your answers to the nearest whole number.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education