Intermediate Accounting
Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
Question
Chapter 10, Problem 10.1P
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: Journal entries for each of the given transactions.

Expert Solution & Answer
Check Mark

Explanation of Solution

1.

Journal entry to record the acquisition costs of the land, and building:

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)

Percent of total fair value = Fair value of land / buildingTotalfairvalue

Initital valuation = Percent of total fair value × Cash paid for the property

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.

Present value = Note payable×Present value of $1 =$40,000 × .92593=$37,037

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.

Discount on note  payable = Note payable – Present value of equipment = $40,000 – $37,037=$2,963

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.

Equipment = Purchase price + Freight charges  =$15,000+$500=$15,500

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.

Total value of land =  Cash paid + Note payable $20,000=$2,000+Note payable Note payable  = $20,000$2,000Note payable  = $18,000

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Chapter 10 Solutions

Intermediate Accounting

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