Cheyenne Engineering Corporation purchased conveyor equipment with a list price

Question

Cheyenne Engineering Corporation purchased conveyor equipment with a list price of $9,300. Presented below are three independent cases related to the equipment.

Prepare the general journal entries required to record the acquisition and payment in each of the independent cases above. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No.

Account Titles and Explanation

Debit

Credit

(a)

(To record the purchase of equipment on account.)

(To record the payment on account.)

(b)

(To record the purchase of equipment on account.)

(To record the payment on account.)

(c)

(To record the purchase of equipment with a note.)

(To record the payment of the note.)

(a) Cheyenne paid cash for the equipment 8 days after the purchase. The vendor’s credit terms are 2/10, n/30. Assume that equipment purchases are initially recorded gross. (b) Cheyenne traded in equipment with a book value of $1,800 (initial cost $7,600), and paid $9,400 in cash one month after the purchase. The old equipment could have been sold for $400 at the date of trade. (The exchange has commercial substance.) (c) Cheyenne gave the vendor a $11,800 zero-interest-bearing note for the equipment on the date of purchase. The note was due in one year and was paid on time. Assume that the effective-interest rate in the market was 9%.

Explanation / Answer

  Journal Entries (Amounts in $)

No. Account Titles and Explanation Debit Credit a) Equipment 9,300 Accounts Payable 9,300 (To record the purchase of equipment on account) Accounts Payable 9,300 Cash ($9,300 - $186) 9,114 Equipment ($9,300*2%) 186 (To record the payment on account) b) Equipment (New) ($9,400+$400) 9,800 Loss on Disposal of Equipment (9,400+7,600-9,800-5,800) 1,400 Accumulated Depreciation-Equipment ($7,600-$1,800) 5,800 Accounts Payable 9,400 Equipment (Old) 7,600 (To record the purchase of equipment on account) Accounts Payable 9,400 Cash 9,400 (To record the payment on account) c) Equipment ($11,800/1.09) 10,826 Discount on Notes Payable (11,800-10,826) 974 Notes Payable 11,800 (To record the purchase of equipment with a note) Interest Expense 974 Notes Payable 11,800 Discount on Notes Payable 974 Cash 11,800 (To record the payment of the note.)

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