Question

On September 1, the company acquired five acres of land with a building that will be used as a warehouse. Tristar paid $120,000 in cash for the property. According to appraisals, the land had a fair value of $85,400 and the building had a fair value of $54,600. On September 1, Tristar signed a $42,000 noninterest-bearing note to purchase equipment. The $42,000 payment is due on September 1, 2022. Assume that 9% is a reasonable interest rate. On September 15, a truck was donated to the corporation. Similar trucks were selling for $2,700. On September 18, the company paid its lawyer $4,000 for organizing the corporation. On October 10, Tristar purchased maintenance equipment for cash. The purchase price was $17,000 and $600 in freight charges also were paid. On December 2, Tristar acquired various items of office equipment. The company was short of cash and could not pay the $5,700 normal cash price. The supplier agreed to accept 200 shares of the company's no-par common stock in exchange for the equipment. The fair value of the stock is not readily determinable. On December 10, the company acquired a tract of land at a cost of $22,000. It paid $3,000 down and signed a 11% note with both principal and interest due in one year. Eleven percent is an appropriate rate of interest for this note.

Required:
Prepare journal entries to record each of the above transactions.

Answer 1

Answer and Explanation:

The Journal entries is shown below:-

1. Land Dr, $73,200 (($85,400 ÷ (85,400 + 54,600)) × $120,000)

Building Dr, $46,800 ($54,600 ÷ (85,400 + 54,600)) × $120,000

To Cash $120,000

(Being cash paid is recorded)

2. Equipment Dr, $38,532.06 ($42,000 × 0.91743)

Discount on Note Payable Dr, $3,4687.94 ($3,780 × 0.91743)

To Note Payable $42,000

(Being equipment is recorded)

3. Truck Dr, $2,700

To Sales revenue $2,700

(Being truck is recorded)

4. Organisation cost Exp enses Dr, $4,000

To Cash $4,000

(Being cash paid is recorded)

5. Maintenance Equipment Dr, $17,600

To Cash $17,600

(Being cash paid is recorded)

6. Office Equipment Dr, $5,700

To Common Stock $5,700

(Being office equipment is recorded)

7. Land Dr, $22,000

To Cash $3,000

To Note Payable $19,000

(Being cash paid is recorded)