Exercise 10-3 Waterway Corporation operates a retail computer store. To improve
ID: 2565027 • Letter: E
Question
Exercise 10-3
Waterway Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2017. The terms of acquisition for each truck are described below.
Prepare the appropriate journal entries for the above transactions for Waterway Corporation. (Round present value factors to 5 decimal places, e.g. 0.52587 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
1.
2.
3.
4.
Open Show Work
1. Truck #1 has a list price of $40,350 and is acquired for a cash payment of $37,391. 2. Truck #2 has a list price of $43,040 and is acquired for a down payment of $5,380 cash and a zero-interest-bearing note with a face amount of $37,660. The note is due April 1, 2018. Waterway would normally have to pay interest at a rate of 9% for such a borrowing, and the dealership has an incremental borrowing rate of 8%. 3. Truck #3 has a list price of $43,040. It is acquired in exchange for a computer system that Waterway carries in inventory. The computer system cost $32,280 and is normally sold by Waterway for $40,888. Waterway uses a perpetual inventory system. 4. Truck #4 has a list price of $37,660. It is acquired in exchange for 900 shares of common stock in Waterway Corporation. The stock has a par value per share of $10 and a market price of $13 per share.Explanation / Answer
Note:- Present value of truck #2 = [$37660 / (1+0.09)1] + down payment of $5,380 cash
=34550.45872 + 5380
=39930
No. Account Titles and Explanation Dr. Cr. 1 Truck #1 $37,391 To cash $37,391 2. Truck #2 $39930 Discount on notes payable [$43,040 - 39930] 3110 To cash $5,380 To Notes payable $37,660Note:- Present value of truck #2 = [$37660 / (1+0.09)1] + down payment of $5,380 cash
=34550.45872 + 5380
=39930
3 Truck #3 $40,888 Cost of goods sold $32,280 To Inventory $32,280 To Sales revenue $40,888 4 Truck #4 [900 shares * $13 market price] $11700 To Common stock [900 shares * $10 par value] $9000 To paid in capital in excess of par [900 shares * $3] $2700Related Questions
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