Practice Exercise 10-1 Flounder Corporation builds in-home theater systems. Flou

Question

Practice Exercise 10-1

Flounder Corporation builds in-home theater systems. Flounder’s business is growing quickly. Therefore, the CEO, Paul Flounder, decides to purchase three new trucks on September 20, 2017. The terms of acquisition for each truck are described below.

Prepare the appropriate journal entries for the above transactions for Flounder Corporation. (Round present value factors to 5 decimal places, e.g. 0.52587 and final answers to 2 decimal places, e.g. 5,275.50. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

1. The first truck’s list price is $17,640. Flounder exchanges home theater equipment from its inventory for the truck. The home theater equipment cost Molitor $10,920. Flounder normally sells the equipment for $16,590. Flounder uses a perpetual inventory system. 2. The second truck has a list price of $18,480. Flounder makes a down payment of $4,200 cash on this truck and signs a zero-interest-bearing note with a face amount of $14,280. Payment of the note is due September 20, 2018. Flounder would normally have to pay interest at a rate of 8% for such a borrowing. 3. The list price of the third truck is $16,128. This truck is acquired in exchange for 1,008 shares of common stock in Flounder Corporation. The stock has a par value per share of $10 and a market price of $14 per share.

Explanation / Answer

Answer

The appropriate journal entries for the above transactions for Flounder Corporation:

Date Particulars Dr Cr September 20 Truck 17640 Merchandise inventory 16590 Gain on purchase of truck 1050 (For truck exchanged for home theater equipment) September 20 Truck 18480 Cash 4200 Zero interest bearing note 14280 (for truck purchased by signing note) September 20 Truck 16128 Common Stock (1,008*10) 10080 Additional paid in capital (1,008*4) 4032 Gain on purchase of truck(16128-10080-4032) 2016 (for truck purchased by issuing shares)

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