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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.
![Check Mark](/static/check-mark.png)
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 ($) |
Land | 75,000 | 62.5% | 62,500 |
Building | 45,000 | 37.5% | 37,500 |
Total | 120,000 | 100.0% | 100,000 |
Table (2)
Formula:
2.
To Prepare: The journal entry to record the acquisition of equipment on note.
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Journal entry to record the acquisition of equipment on note:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
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 $1: n = 1, i =8%) is taken from the table value (Table 2 in Appendix from textbook).
Determine the discount on note payable.
3.
To Prepare: The journal entry to record the acquisition of a truck by donation.
3.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Journal entry to record the acquisition of a truck by donation:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
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 $2,500.
4.
To Prepare: The journal entry to record the capitalization of organization costs.
4.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Journal entry to record the capitalization of organization costs:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
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 $3,000.
5.
To Prepare: The journal entry to record the purchase of equipment.
5.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Journal entry to record the purchase of equipment:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
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 $15,500.
Working note:
Determine the value of equipment.
6.
To Prepare: The journal entry to record the acquisition of office equipment in exchange of common stock.
6.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Journal entry to record the acquisition of office equipment in exchange of common stock:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
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 $5,500.
7.
To Prepare: The journal entry to record the acquisition of land in exchange cash and note payable.
7.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Journal entry to record the acquisition of land in exchange cash and note payable:
Date | Account Title and Explanation |
Post Ref. |
Debit ($) |
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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