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Recording Purchase of Equipment through Debt and Equity On January 1, 2020, Sidelines Company purchases equipment with an estimated 6-year useful life by making a $14,000 cash payment and issuing a noninterset-bearing note for $48,000 due in two years. The fair value of the the equipment is unknown. An 11% annual interest rate is typical of this transaction. The company uses the effective interest method to amortize interest expense and the straight-line method to estimate depreciation expense. a. Prepare the entry to record the purchase on January 1, 2020. b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. 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. Purchase of Equipment with Debt Purchase of Equipment through Equity a. Prepare the entry to record the purchase on January 1, 2020. Date Account Name Jan. 1. 2020 Equipment Discount on Note Payable Cash Note Payable Interest Expense D ✓ Discount on Note Payable To record interest. Dec. 31, 2020 Depreciation Expense Note Payable To record depreciation. • • ✓ b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2020 • Dr. 52.958 9,042 ✔ ✓ 0✓ o✓ 8,826 x 0✔ Cr. 4,285 x 0✔ 0✓ 0✓ 14,000 ✓ 48.000 0✓ 4,521 x 0✔ 8.286 x

Recording Purchase of Equipment through Debt and Equity On January 1, 2020, Sidelines Company purchases equipment with an estimated 6-year useful life by making a $14,000 cash payment and issuing a noninterset-bearing note for $48,000 due in two years. The fair value of the the equipment is unknown. An 11% annual interest rate is typical of this transaction. The company uses the effective interest method to amortize interest expense and the straight-line method to estimate depreciation expense. a. Prepare the entry to record the purchase on January 1, 2020. b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. 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. Purchase of Equipment with Debt Purchase of Equipment through Equity a. Prepare the entry to record the purchase on January 1, 2020. Date Account Name Jan. 1. 2020 Equipment Discount on Note Payable Cash Note Payable Interest Expense D ✓ Discount on Note Payable To record interest. Dec. 31, 2020 Depreciation Expense Note Payable To record depreciation. • • ✓ b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2020 • Dr. 52.958 9,042 ✔ ✓ 0✓ o✓ 8,826 x 0✔ Cr. 4,285 x 0✔ 0✓ 0✓ 14,000 ✓ 48.000 0✓ 4,521 x 0✔ 8.286 x

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Recording Purchase of Equipment through Debt and Equity On January 1, 2020, Sidelines Company purchases equipment with an estimated 6-year useful life by making a $14,000 cash payment and issuing a noninterset-bearing note for $48,000 due in two years. The fair value of the the equipment is unknown. An 11% annual interest rate is typical of this transaction. The company uses the effective interest method to amortize interest expense and the straight-line method to estimate depreciation expense. a. Prepare the entry to record the purchase on January 1, 2020. b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. 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. Purchase of Equipment with Debt Purchase of Equipment through Equity a. Prepare the entry to record the purchase on January 1, 2020. Date Account Name Jan. 1, 2020 Equipment Discount on Note Payable Cash Note Payable Interest Expense Discount on Note Payable To record interest. + Dec. 31, 2020 Depreciation Expense Note Payable To record depreciation. ◆ b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2020 ✓ ◆ ✓ + ◆ ◆ Dr. 52,958 ✔ 9,042 ✔ 0✔ 0✔ x 8,826 * 0 Cr. 4,285 x 0✔ 0 0 ✓ 14,000 ✓✔ 48,000 ✓ 0✓ 4,521 * 0 ✓ 8,286 x c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020.
Transcribed Image Text:Recording Purchase of Equipment through Debt and Equity On January 1, 2020, Sidelines Company purchases equipment with an estimated 6-year useful life by making a $14,000 cash payment and issuing a noninterset-bearing note for $48,000 due in two years. The fair value of the the equipment is unknown. An 11% annual interest rate is typical of this transaction. The company uses the effective interest method to amortize interest expense and the straight-line method to estimate depreciation expense. a. Prepare the entry to record the purchase on January 1, 2020. b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. 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. Purchase of Equipment with Debt Purchase of Equipment through Equity a. Prepare the entry to record the purchase on January 1, 2020. Date Account Name Jan. 1, 2020 Equipment Discount on Note Payable Cash Note Payable Interest Expense Discount on Note Payable To record interest. + Dec. 31, 2020 Depreciation Expense Note Payable To record depreciation. ◆ b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2020 ✓ ◆ ✓ + ◆ ◆ Dr. 52,958 ✔ 9,042 ✔ 0✔ 0✔ x 8,826 * 0 Cr. 4,285 x 0✔ 0 0 ✓ 14,000 ✓✔ 48,000 ✓ 0✓ 4,521 * 0 ✓ 8,286 x c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020.
c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. Balance Sheet, Dec 31 2020 Assets: Equipment, net Liabilities: Note payable, net $ $ 48,000 * d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2021 48,000 x Interest Expense Discount on Note Payable To record interest. Dec. 31, 2021 Note Payable Cash To record payment on note. Dec. 31, 2021 Depreciation Expense Accounts Payable To record depreciation. + + ◆ + ✓ ✓ ✓ ♦ ✓ ◆ X 4,521 * 0✔ 8.626 X 0✔ 8,826 ✔ 0✔ 0✔ 4,521 * 0 ✓ 8,286 * 0 ✓ 8,826 ✔
Transcribed Image Text:c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. Balance Sheet, Dec 31 2020 Assets: Equipment, net Liabilities: Note payable, net $ $ 48,000 * d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2021 48,000 x Interest Expense Discount on Note Payable To record interest. Dec. 31, 2021 Note Payable Cash To record payment on note. Dec. 31, 2021 Depreciation Expense Accounts Payable To record depreciation. + + ◆ + ✓ ✓ ✓ ♦ ✓ ◆ X 4,521 * 0✔ 8.626 X 0✔ 8,826 ✔ 0✔ 0✔ 4,521 * 0 ✓ 8,286 * 0 ✓ 8,826 ✔
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