Question

Exercise 10-13 Ivanhoe Engineering Corporation purchased conveyor equipment with a list price of $45,200. Three independent cases that are related to the equipment follow. Assume that the equipment purchases are recorded gross. 1. Geddes paid cash for the equipment 25 days after the purchase, along with 5% GST (recoverable) and provincial sales tax of $3,164, both based on the purchase price. The vendor's credit terms were 1/10, n/30. 2. Geddes traded in equipment with a book value of $1,000 (initial cost $41,300) and paid $42,100 in cash one month after the purchase. The old equipment could have been sold for $1,600 at the date of trade but was accepted for a trade-in allowance of $3,100 on the new equipment. 3. Geddes gave the vendor a $10,100 cash down payment and a 11% note payable with blended principal and interest payments of $17,550 each, due at the end of each of the next three years. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. (a) Prepare the general journal entries to record the acquisition and the subsequent payment, including any notes payable, in each of the three independent cases above. For item 3, use a table, financial calculator, or Excel. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.)

Answer 1

1. The vendor credit terms are 1/10 net 30 which means discount of 1% will be available if paid within 10 days. Since the payment is made 25 days after the purchase, no cash discount will be available.

Provincial Sales tax, since not recoverable, will be added to the cost of equipment.

S.no.	Particulars		Dr. Amount	Cr. Amount
1)	Equipment	Dr.	$       48,364
	GST Receivable	Dr.	$         2,260
	Vendor	Cr.		$      50,624
	(To record purchase of equipment on credit)
2)	Vendor	Dr.	$       50,624
	Cash	Cr.		$      50,624
	(To record payment to the vendor)

2. For the equipment traded, book value is $1,000 and original cost is $41,300. So, accumulated depreciation on it is $40,300. Since it is sold for $3,100, gain on its disposal is $2,100.

S.no.	Particulars		Dr. Amount	Cr. Amount
1)	Equipment (New)	Dr.	$       45,200
	Accumulate Depreciation - Equipment	Dr.	$       40,300
	Vendor	Cr.		$      42,100
	Gain on disposal of equipment	Cr.		$ 2,100
	Equipment (Old)	Cr.		$      41,300
	(To record exchange of equipment)
2)	Vendor	Dr.	$       42,100
	Cash	Cr.		$      42,100
	(To record payment to the vendor)

3. PV of yearly payments of $17,550 at end of 3 years is 17550 * PVAF (11%,3) = 17550 * 2.44371 = $42,887

SO, cost of equipment today = $42887 + $10100 = $52,987

List price is $45,200. So finance expense is $7,787.

S.no.	Particulars		Dr. Amount	Cr. Amount
1)	Equipment	Dr.	$       45,200
	Finance Expense	Dr.	$         7,787
	Cash	Cr.		$      10,100
	Note payable	Cr.		$      42,887
	(To record purchase of equipment on credit)
2)	Interest Expense (42887 * 0.11)	Dr.	$         4,718
	Note payable	Dr.	$       12,832
	Cash	Cr.		$      17,550
	(First payment on note)
3)	Interest Expense [(42887-12832)*.11]	Dr.	$         3,306
	Note payable	Dr.	$       14,244
	Cash	Cr.		$      17,550
	(Second payment on note)