![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_largeCoverImage.gif)
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: Journal entries for each of the given transactions.
![Check Mark](/static/check-mark.png)
Explanation of Solution
1.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
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 ($) |
Land | 75,000 | 62.5% | 62,500 |
Building | 45,000 | 37.5% | 37,500 |
Total | 120,000 | 100.0% | 100,000 |
Table (2)
2.
Journal entry to record the acquisition of equipment on note:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
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 $1: n = 1, i =8%) is taken from the table value (Table 2 in Appendix from textbook).
Determine the discount on note payable.
3.
To Prepare: The journal entry to record the acquisition of a truck by donation.
Solution:
Journal entry to record the acquisition of a truck by donation:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
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 $2,500.
4.
Journal entry to record the capitalization of organization costs:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
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 $3,000.
5.
Journal entry to record the purchase of equipment:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
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 $15,500.
Working note:
Determine the value of equipment.
6.
Journal entry to record the acquisition of office equipment in exchange of common stock:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
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 $5,500.
7.
Journal entry to record the acquisition of land in exchange cash and note payable:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
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)
- 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.
Want to see more full solutions like this?
Chapter 10 Solutions
Intermediate Accounting
- Cool Comfort currently sells 360 Class A spas, 520 Class C spas, and 230 deluxe model spas each year. The firm is considering adding a mid-class spa and expects that, if it does, it can sell 375 of them. However, if the new spa is added, Class A sales are expected to decline to 255 units while Class C sales are expected to decline to 240. The sales of the deluxe model will not be affected. Class A spas sell for an average of $13,500 each. Class C spas are priced at $7,200 and the deluxe model sells for $19,000 each. The new mid-range spa will sell for $11,000. What is the value of erosion? Helparrow_forwardCool Comfort currently sells 360 Class A spas, 520 Class C spas, and 230 deluxe model spas each year. The firm is considering adding a mid-class spa and expects that, if it does, it can sell 375 of them. However, if the new spa is added, Class A sales are expected to decline to 255 units while Class C sales are expected to decline to 240. The sales of the deluxe model will not be affected. Class A spas sell for an average of $13,500 each. Class C spas are priced at $7,200 and the deluxe model sells for $19,000 each. The new mid-range spa will sell for $11,000. What is the value of erosion?arrow_forwardGeneral accountingarrow_forward
- Accounting 12arrow_forwardKindly help me with accounting questionsarrow_forwardIf beginning inventory is $75,000, cost of goods purchased is $420,000, and ending inventory is $65,000, what is the cost of goods sold under a periodic system? (a) $470,000 (b) $400,000 (c) $370,000 (d) $430,000arrow_forward
- Need correct answer general accounting qualificationarrow_forwardMEG Adventures pays $525,000 plus $13,000 in closing costs to buy out a competitor. The real estate consists of land appraised at $62,000, a building appraised at $211,400, and paddleboats appraised at $255,400. Compute the cost that should be allocated to the building. Give me Answerarrow_forwardCalculate the profit marginarrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningAccounting (Text Only)AccountingISBN:9781285743615Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial & Managerial AccountingAccountingISBN:9781285866307Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337788281/9781337788281_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781285743615/9781285743615_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781285866307/9781285866307_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305654174/9781305654174_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337794756/9781337794756_smallCoverImage.gif)