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On January 1, Vale Inc. acquires equipment with a 10-year useful life by issuing a two-year, zero-interest bearing installment note payable. The market rate is 14% for similar transactions. Terms are $19,600 cash payment immediately plus payments of $14,000 cash at the end of each of the next two years. The company uses the effective interest method to amortize any discount on note payable and the straight-line method to record depreciation expense. Required a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. d. Assume instead that Vale exchanged 280 shares of its own $1 par common stock along with $19,600 cash for the equipment. The stock was not actively traded, but the equipment was estimated to have a fair value at the date of acquisition of $44,800. Prepare the entry to record the purchase. Purchase of Equipment with Debt Purchase of Equipment with Equity a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. Note: Round each of your answers to the nearest whole number.

On January 1, Vale Inc. acquires equipment with a 10-year useful life by issuing a two-year, zero-interest bearing installment note payable. The market rate is 14% for similar transactions. Terms are $19,600 cash payment immediately plus payments of $14,000 cash at the end of each of the next two years. The company uses the effective interest method to amortize any discount on note payable and the straight-line method to record depreciation expense. Required a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. d. Assume instead that Vale exchanged 280 shares of its own $1 par common stock along with $19,600 cash for the equipment. The stock was not actively traded, but the equipment was estimated to have a fair value at the date of acquisition of $44,800. Prepare the entry to record the purchase. Purchase of Equipment with Debt Purchase of Equipment with Equity a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. Note: Round each of your answers to the nearest whole number.

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
Problem 79E
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Purchase of Equipment with Debt a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. Note: Round each of your answers to the nearest whole number. Date a. Jan. 1, Year 1 b. Dec. 31, Year 1 Dec. 31, Year 1 Dec. 31, Year 1 c. Dec. 31, Year 2 Dec. 31, Year 2 Dec. 31, Year 2 To record interest Purchase of Equipment with Equity To record the purchase of equipment Account Name To record payment on note To record depreciation To record interest To record payment on note To record depreciation > > > > > > > Dr. 0 0 0 0 0 0 0 0 O O 0 0 0 0 0 0 Cr. 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0
Transcribed Image Text:Purchase of Equipment with Debt a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. Note: Round each of your answers to the nearest whole number. Date a. Jan. 1, Year 1 b. Dec. 31, Year 1 Dec. 31, Year 1 Dec. 31, Year 1 c. Dec. 31, Year 2 Dec. 31, Year 2 Dec. 31, Year 2 To record interest Purchase of Equipment with Equity To record the purchase of equipment Account Name To record payment on note To record depreciation To record interest To record payment on note To record depreciation > > > > > > > Dr. 0 0 0 0 0 0 0 0 O O 0 0 0 0 0 0 Cr. 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0
Recording Purchase of Equipment through Debt and Equity On January 1, Vale Inc. acquires equipment with a 10-year useful life by issuing a two-year, zero-interest bearing installment note payable. The market rate is 14% for similar transactions. Terms are $19,600 cash payment immediately plus payments of $14,000 cash at the end of each of the next two years. The company uses the effective interest method to amortize any discount on note payable and the straight-line method to record depreciation expense. Required a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. d. Assume instead that Vale exchanged 280 shares of its own $1 par common stock along with $19,600 cash for the equipment. The stock was not actively traded, but the equipment was estimated to have a fair value at the date of acquisition of $44,800. Prepare the entry to record the purchase. Purchase of Equipment with Debt Purchase of Equipment with Equity a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. Note: Round each of your answers to the nearest whole number.
Transcribed Image Text:Recording Purchase of Equipment through Debt and Equity On January 1, Vale Inc. acquires equipment with a 10-year useful life by issuing a two-year, zero-interest bearing installment note payable. The market rate is 14% for similar transactions. Terms are $19,600 cash payment immediately plus payments of $14,000 cash at the end of each of the next two years. The company uses the effective interest method to amortize any discount on note payable and the straight-line method to record depreciation expense. Required a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. d. Assume instead that Vale exchanged 280 shares of its own $1 par common stock along with $19,600 cash for the equipment. The stock was not actively traded, but the equipment was estimated to have a fair value at the date of acquisition of $44,800. Prepare the entry to record the purchase. Purchase of Equipment with Debt Purchase of Equipment with Equity a. Prepare the entry to record the purchase of this equipment. b. Prepare the entry at the end of year one for (1) interest accrual, (2) cash payment, and (3) depreciation expense. c. Prepare the entry at the end of year two for (1) interest accrual, (2) cash payment, and (3) depreciation expense. Note: Round each of your answers to the nearest whole number.
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