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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 1, Kilgore Inc. accepts a $20,000 non-interest-bearing, 5-year note from Dieland Company for equipment. Neither the fair value of the note nor the equipment is determinable. Kilgore had originally purchased the equipment for $18,000, and the equipment has a book value of $14,000 on January 1. Kilgore knows Dieland’s incremental borrowing rate of 9%. Prepare the journal entry for Kilgore to record the sale of the equipment on January 1.

To determine

Record the journal entry for the sale of the equipment on January 1.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Record the journal entry for the sale of the equipment on January 1.

DateAccount title and explanationDebit ($)Credit ($)
January 1Notes receivable20,000.00 
 Accumulated depreciation4,000.00 
 Loss on sale of equipment1,001.38 
 Discount on notes receivable (2) 7,001.38
 Equipment 18,000.00
 (To record the sales of an equipment  

Table (1)

Working note (1):

Calculate the present value of the note.

Present value of the note=Value of the note×PV factor=$20,000×0.649931(n=5,i=9%, Table 3 in TVM module)=$12,998

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