Chapter 10, Problem 10.1P

1.

To determine

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 journal entry to record the acquisition of land and building.

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:

$\text{Percent of total fair value = }\frac{\text{Fair value of land / building}}{\text{Total}\text{fair}\text{value}}$

$\text{Initital valuation = Percent of total fair value }\times \text{ Cash paid for the property}$

2.

To determine

To Prepare: The journal entry to record the acquisition of equipment on note.

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.

$\begin{array}{c}\text{Present value = Note payable}\times \text{Present value of \$1 }\\ =\$40,000\times \text{.92593}\\ =\$37,037\end{array}$

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.

$\begin{array}{c}\text{Discount on note payable = Note payable – Present value of equipment }\\ \text{= \$40,000 – \$37,037}\\ \text{=\$2,963}\end{array}$

3.

To determine

To Prepare: The journal entry to record the acquisition of a truck by donation.

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 determine

To Prepare: The journal entry to record the capitalization of organization costs.

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 determine

To Prepare: The journal entry to record the purchase of equipment.

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.

$\begin{array}{c}\text{Equipment = Purchase price + Freight charges }\\ =\$15,000+\$500\\ =\$15,500\end{array}$

6.

To determine

To Prepare: The journal entry to record the acquisition of office equipment in exchange of common stock.

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 determine

To Prepare: The journal entry to record the acquisition of land in exchange cash and note payable.

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.

$\begin{array}{l}\text{Total value of land = Cash paid + Note payable }\\ \$20,000=\$2,000+\text{Note payable }\\ \text{Note payable = }\$20,000-\$2,000\\ \text{Note payable = \$18,000}\end{array}$