Concept explainers
1.
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
1.
Explanation of Solution
Journal entry to record the acquisition costs of the land, and building:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
September 1, 2016 | Land | 62,500 | ||
Building | 37,500 | |||
Cash | 100,000 | |||
(To record the acquisition costs of land and building..) |
Table (1)
- Land is an asset account, and it is increased by $62,500. Therefore, debit Land account with $62,500.
- Building is an asset account, and it is increased by $37,500. Therefore, debit Land account with $37,500.
- Cash is an asset account, and it is decreased by $100,000. Therefore, credit Cash account with $100,000.
Working note
Determine the initial value of land and building.
Cash paid for the property is $100,000.
Asset | Fair value ($) |
Percent of Total fair value (%) |
Initial valuation ($) |
Land | 75,000 | 62.5% | 62,500 |
Building | 45,000 | 37.5% | 37,500 |
Total | 120,000 | 100.0% | 100,000 |
Table (2)
Formula:
2.
To Prepare: The journal entry to record the acquisition of equipment on note.
2.
Explanation of Solution
Journal entry to record the acquisition of equipment on note:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
September 1, 2016 | Equipment | 37,037 | ||
Discount on note payable | 2,963 | |||
Note payable | 40,000 | |||
(To record the acquisition of equipment.) |
Table (3)
- Equipment is an asset account, and it is increased by $37,037. Therefore, debit Equipment account with $37,037.
- Discount on note payable is a contra liability account, and increased by $2,963. Hence, debit the Discount on note payable account with $2,963.
- Note Payable is a liability account, and is increased by $40,000. Therefore, credit the Note payable account with $40,000.
Working note:
Determine the present value of note payments.
Note: PV factor (Present value of $1: n = 1, i =8%) is taken from the table value (Table 2 in Appendix from textbook).
Determine the discount on note payable.
3.
To Prepare: The journal entry to record the acquisition of a truck by donation.
3.
Explanation of Solution
Journal entry to record the acquisition of a truck by donation:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
September 15, 2016 | Truck | 2,500 | ||
Revenue – donation of asset | 2,500 | |||
(To record the acquisition cost of a truck by donation.) |
Table (4)
- Truck is an asset account, and it is increased by $2,500. Therefore, debit Truck account with $2,500.
- Revenue – Donation of asset is a component of equity, and increased by $2,500. Therefore, credit Revenue – Donation of asset account with $2,500.
4.
To Prepare: The journal entry to record the capitalization of organization costs.
4.
Explanation of Solution
Journal entry to record the capitalization of organization costs:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
September 18, 2016 | Organization cost expense | 3,000 | ||
Cash | 3,000 | |||
(To record the organization cost expense.) |
Table (5)
- Organization cost expense is an expense account. Expenses and losses reduce Equity value. Therefore, debit Organization cost expense with $3,000.
- Cash is an asset account. The amount has decreased because cash is paid for the expenditures incurred. Therefore, credit Cash account with $3,000.
5.
To Prepare: The journal entry to record the purchase of equipment.
5.
Explanation of Solution
Journal entry to record the purchase of equipment:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
October 10, 2016 | Maintenance Equipment | 15,500 | ||
Cash | 15,500 | |||
(To record the purchase of equipment.) |
Table (6)
- Equipment is an asset account, and it is increased by $15,500. Therefore, debit Equipment account with $15,500.
- Cash is an asset account, and it is decreased by $15,500. Therefore, credit Cash account with $15,500.
Working note:
Determine the value of equipment.
6.
To Prepare: The journal entry to record the acquisition of office equipment in exchange of common stock.
6.
Explanation of Solution
Journal entry to record the acquisition of office equipment in exchange of common stock:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 2, 2016 | Office Equipment | 5,500 | ||
Common stock | 5,500 | |||
(To record the acquisition costs of office equipment in exchange of common stock.) |
Table (7)
- Office equipment is an asset account, and it is increased by $5,500. Therefore, debit Office equipment account with $5,500.
- Common stock is a component of equity and it is increased by $5,500. Therefore, credit common stock account with $5,500.
7.
To Prepare: The journal entry to record the acquisition of land in exchange cash and note payable.
7.
Explanation of Solution
Journal entry to record the acquisition of land in exchange cash and note payable:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
Credit ($) |
December 10, 2016 | Land | 20,000 | ||
Cash | 2,000 | |||
Note payable | 18,000 | |||
(To record the acquisition costs of land in exchange of cash and note payable.) |
Table (8)
Explanation:
- Land is an asset account, and it is increased by $20,000. Therefore, debit Land account with $20,000.
- Cash is an asset account, and it is decreased by $2,000. Therefore, credit Cash account with $2,000
- Note Payable is a liability account, and is increased by $18,000. Therefore, credit the Note payable account with $18,000.
Working note
Determine the amount of note payable.
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