Question

The Gulp convenience store chain buys new soda machines for 450,000 and pays 50,000 for installation. One-half of the total cost is paid in cash; the other half is financed. How should the company record this transaction?

1) Debit cash for 250,000, debit notes payable for 250,000, and credit equipment for 500,000.
2) Debit equipment for 500,000, credit cash for 250,000, and credit notes payable for 250,000.
3) Debit cash for 250,000, debit notes payable for 250,000, credit equipment for 450,000, and credit expenses for 50,000.
4) Debit equipment for 450,000, debit expenses for 50,000, credit cash for 250,000, and credit notes payable for 250,000.

Answer 1

The company should record this transaction by debiting equipment for $500,000, crediting cash for $250,000, and crediting notes payable for $250,000. Hence, option 2 is correct.

Step-by-step explanation:

The company should record this transaction by debiting equipment for $500,000, crediting cash for $250,000, and crediting notes payable for $250,000.

Here's the breakdown of the transaction:

The company buys new soda machines for $450,000 - debit equipment for $450,000.The company pays $50,000 for installation - debit expenses for $50,000.The total cost of the soda machines and installation is $500,000 - debit equipment for $500,000.Half of the total cost is paid in cash, which reduces the cash account by $250,000 - credit cash for $250,000.