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Property, Plant, and Equipment:
Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.
To Prepare: The
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Explanation of Solution
1.
Prepare the journal entry to record the purchase of equipment on account:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Equipment | 24,500 | |||
Accounts payable | 24,500 | |||
(To record the exchange on the books of R Company.) |
Table (1)
Working Note:
- Equipment is an asset account, and it is increased. Hence, debit the equipment account with $24,500.
- Accounts payable is a liability account, and it is increased. Hence, credit the accounts payable account with $24,500.
2.
Prepare the journal entry to record the purchase of equipment in exchange with a note:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Equipment | 24,545 | |||
Discount on note payable
|
2,455 | |||
Note payable | 27,000 | |||
(To record the exchange on the books of R Company.) |
Table (2)
Working Note:
Calculate the cost of equipment.
Note: PV factor (Present value of $1: n = 1, i = 10%) is taken from the table value (Table 2 in Appendix from textbook).
- Equipment is an asset account, and it is increased. Hence, debit the equipment account with $24,545.
- Discount on note payable is a contra liability account, and it is increased. Hence, debit the discount on note payable account with $2,455.
- Note payable is a liability account, and it is increased. Hence, credit the accounts payable account with $27,000.
3.
Prepare journal entry to record the exchange of old equipment for new equipment.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
New Equipment | 24,500 | |||
8,000 | ||||
Loss | 3,500 | |||
Cash | 22,000 | |||
Old Equipment | 14,000 | |||
(To record the exchange of old equipment for new equipment.) |
Table (3)
- New equipment increases the asset account. Hence, debit New Equipment account with $24,500.
- Accumulated depreciation – old asset is a contra asset. It increases the value of asset account. Therefore, debit Accumulated Depreciation with $8,000.
- Loss on sale of exchange of assets decreases the equity by $3,500. Hence, debit Loss on sale of exchange of assets with $3,500.
- Cash is an asset account and decreased. Therefore, credit Cash account with $22,000.
- Old Equipment is an asset account and decreased. Therefore, credit Old Equipment account with $14,000.
Working note:
Determine the value of new equipment.
Determine the loss on exchange of assets.
4.
Prepare the journal entry to record the purchase of equipment by issuing common stock:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Equipment | 24,000 | |||
Common stock | 24,000 | |||
(To record the exchange on the books of R Company) |
Table (4)
- Equipment is an asset account, and it is increased. Hence, debit the equipment account with $24,000.
- Common stock is a component of equity account, and it is increased. Hence, credit the common stock account with $24,000
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