Connors Corporation acquired manufacturing equipment for use in its assembly line. Below are four independent situations relating to the acquisition of the equipment. What journal entry is required for each situation ?The equipment was purchased on account for $25,000. Credit terms were 2/10, n/30. Payment was made within the discount period and the company records the purchases of equipment net of discounts.Connors gave the seller a noninterest-bearing note. The note required payment of $27,000 one year from date of purchase. The fair value of the equipment is not determinable. An interest rate of 10% properly reflects the time value of money in this situation.Connors traded in old equipment that had a book value of $6,000 (original cost of $14,000 and accumulated depreciation of $8,000) and paid cash of $22,000. The old equipment had a fair value of $2,500 on the date of the exchange. The exchange has commercial substance.Connors issued 1,000 shares of its no-par common stock in exchange for the equipment. The market value of the common stock was not determinable. The equipment could have been purchased for $24,000 in cash.

Solution: Journal entry is an accounting entry to record every transaction takes place in an organization. It consists of several recordings, each of which is either a debit or a credit used for posting and balancing. It contains proper date, correct account names, proper Debit amount and credit amount.Analysis and Calculation: Journal entries for the given independent situations are as follows: Date Account Name Dr. $ Cr. $ 1) Equipment Dr. ($25,000 - 2% of $25,000) 24,500 Accounts Payable Cr. 24,500 (To record Equipment cost at purchase cost net of Discounts) 2) Equipment Dr. ($27,000 * 09090 +++) 24,545 Discount on Note Payable Dr. ($27,000 - $24,545) 2,455 Note Payable 27,000 (To record Note Payable to a seller after one year) 3) Equipment Dr. (new) ,24,500 Accumulated Depreciation Dr. 8,000 Loss On Equipment 3,500 Cash Cr. 22,000 Equipment Cr.(Old) 14,000 (Being Loss on Equipment recorded) 4) Equipment Dr. 24,000 Common Stock Cr. (1,000 shares * $24) 24,000 (To record issue of common stock for equipment) +++Present value of discount factor at i=10% and at one year time period. Since Equipment is an asset and has a normal debit balance. When an Equipment is purchased it will increase the balance of Equipment hence Equipment account is debited with the purchase cost or net of discounts. Conversely, to decrease the value or sale, credit the respective Equipment account accordingly. Common stock are the ordinary shares which are issued by a company to shareholders for raising long term capital investment purposes. Hence it has normal credit balance. Therefore to increase the stock value in case of issuance of stock, a Common stock account is credited. Accumulated Depreciation is the cumulative depreciation provided for the past years.

Answered: onnors Corporation acquired…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Connors Corporation acquired manufacturing equipment for use in its assembly line. Below are four independent situations relating to the acquisition of the equipment. What journal entry is required for each situation ?

The equipment was purchased on account for $25,000. Credit terms were 2/10, n/30. Payment was made within the discount period and the company records the purchases of equipment net of discounts.
Connors gave the seller a noninterest-bearing note. The note required payment of $27,000 one year from date of purchase. The fair value of the equipment is not determinable. An interest rate of 10% properly reflects the time value of money in this situation.
Connors traded in old equipment that had a book value of $6,000 (original cost of $14,000 and accumulated depreciation of $8,000) and paid cash of $22,000. The old equipment had a fair value of $2,500 on the date of the exchange. The exchange has commercial substance.
Connors issued 1,000 shares of its no-par common stock in exchange for the equipment. The market value of the common stock was not determinable. The equipment could have been purchased for $24,000 in cash.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Accounting for Property, Plant and Equipment

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.