Question

Novak Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2020. The terms of acquisition for each truck are described below. 1. Truck #1 has a list price of $42,150 and is acquired for a cash payment of $39,059. 2. Truck #2 has a list price of $44,960 and is acquired for a down payment of $5,620 cash and a zero-interest-bearing note with a face amount of $39,340.The note is due April 1, 2021. Novak would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%. 3. Truck #3 has a list price of $44,960. It is acquired in exchange for a computer system that Novak carries in inventory. The computer system cost $33,720 and is normally sold by Novak for $42,712. Novak uses a perpetual inventory system. 4. Truck #4 has a list price of $39,340. It is acquired in exchange for 900 shares of common stock in Novak Corporation. The stock has a par value per share of $10 and a market price of $13 per share. Prepare the appropriate journal entries for the above transactions for Novak Corporation. (Round present value factors to 5 decimal places, e.g. 0.52587 and final answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts.)

Answer 1

As per the accounting standards fixed asset is acquired at the purchase cost plus any other expdexpe incurred to make it ready for the intended use. In the given case

1.Truck1

Truck 1 a/c.....Dr 39059

To Cash a/c 39059

2.Truck 3

Truck 3 a/c.....Dr 44960

To Inventory a/c 42712

To profit and loss a/c 2248

In the above situation the inventory is exchanged to acquire the Truck.therefore cost of the truck will be the fair market value of the asset acquired and any balance will be considered either gain or loss.

3.Truck 4

Truck 4 a/c.....Dr 39340

To Share capital a/c 9000

To security premium a/c 2700

To profit and loss a/c 27640

In the above case company acquired Truck by issuing it's shares.extra 3 will be credited to the security premium account and balance either gain or loss Accounted through profit and loss a/c.

Truck 2

Truck 2 a/c.....Dr 44960

To Cash a/c. 5620

To liability a/c 39340

Restatement of financial liability

Profit and loss a/c . 729

To liability . a/c 729