Question 1 Monty Corporation builds in-home theater systems. Monty\'s business i

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Question 1 Monty Corporation builds in-home theater systems. Monty's business is growing quicdy. Therefore, the CEO, Paul Monty, decides to purchase three new trucks on September 20, 2017·The terms of acquisition for each truck are described below. 1· The first truck's list price is $19,220 Monty exchanges home theater equipment from its inventory for the truck. The home theater equipment cost Molitor S11.960 Monty 2. The second truck has a list price of $20,240. Monty makes a down payment of $4,600 cash on this truck and signs a zero-interest-bearing note with a face amount of $15,640. 3. The list price of the third truck is $17,664. This truck is acquired in exchange for 1,104 shares of common stock in Monty Corporation. The stock has a par value per share of Prepare the appropriate journal entries for the above transactions for Monty Corporation. (Round present value factors to 5 decimal places, e.g.0.52587 and final answers normally sells the equipment for $ 18,170. Monty uses a perpetual inventory system. Payment of the note is due September 20, 2018, Monty would normally have to pay interest at a rate of 8% for such a borrowing. $11 and a market price of $16 per share. to 2 decimal places, e.g. 5,275.50. Credit account titles are autonatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation DebitCredit 1. Trucks 8170 Cost of Goods Seld 1960 1960 1.170 ales Revenue on Notes Payable

Explanation / Answer

In the second transaction for purchase of truck:

Note is zero interest bearing note payable in one year with a face amount of $15,640

Similar notes have interest @ 8%

Hence we will calculate the present value of the note using the discount rate as 8%

PV = FV x 1 / (1+r)n

Where FV is future value, r is the discount rate and n is number of period

In this case FV = 15,640, r = 8% and n = 1

PV = 15,640 x 1 / (1+0.08)1

= 15,640 x 0.92593

= $14,481.55

Hence discount on notes payable = 15,640 - 14,481.55 = $1,158.45

The following are the journal entries

No. Account Titles and Explanation Debit Credit 1 Trucks 18170 Cost of Goods Sold 11960 Inventory 11960 Sales Revenue 18170 Being truck purchased and payment made through selling of inventory; home theatre system 2 Trucks 20240 Cash 4600 Notes payable 14481.55 Discount on notes payable 1158.45 Being truck purchased against downpayment in cash and zero interest notes payable on September 20, 2018 3 Trucks 17664 Common Stock 12144 Paid in capital in excess of par common stock 5520 Being truck purchased and 1,104 common stock exchanged having par value of $11 and market value of $16

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