Accounting in acquisition and disposition of property plant

Accounting in acquisition and disposition of property, plant and Equipment

9. ON JULY 1ST, 2018, DAVIS COMPANY PURCHASED A PIECE OF EQUIPMENT. DAVIS COMPANY SIGNED A NONINTEREST -BEARING NOTE REQUIRING $50,000 TO BE PAID ON JUNE 30TH, 2020. AN INTEREST RATE FOR SIMILAR FINANCING BY DAVIS COMPANY WOULD HAVE REQUIRED AN INTEREST RATE OF 10%. INSTALLATION COSTS OF $400 WERE INCURRED AND PAID IN REGARD TO THE EQUIPMENT. BECAUSE OF VANDELISM DURING THE SHIPMENT, DAViS COMPANY HAD TO PAY $250 TO FIX THE MACHINE. PREPARE THE JOURNAL ENTRY TO ACQUIRE THE EQUIPMENT.

Solution

Date Journal Entry Debit Credit 01-Jul Equipment A/c $50,000 To Non-Interest Bearing Note $50,000 ( Purchase Equipment against No-Interest Beraing Note) Installation Cost A/c $400 To cash $400 (Installation cost Paid) Equipment A/c $400 to Installation cost $400 ( Installation cost capitalized on Equipment) Fixing Cost A/c $250 To cash $250 (Fixing cost Paid) Equipment A/c $250 to Fixing cost $250 ( Fixing cost capitalized on Equipment)