Question

What is the journal entry for the purchase of equipment costing $20,000, where $5,000 is paid in cash, and the remainder is covered by signing a note payable?

a) Debit Equipment $20,000, Credit Cash $5,000, Credit Notes Payable $15,000
b) Debit Equipment $20,000, Credit Cash $5,000, Credit Notes Payable $20,000
c) Debit Equipment $15,000, Credit Cash $5,000, Credit Notes Payable $20,000
d) Debit Equipment $15,000, Credit Cash $15,000, Credit Notes Payable $5,000

Answer 1

The correct journal entry for the purchase of $20,000 equipment with $5,000 paid in cash and $15,000 covered by a note payable is to debit Equipment for $20,000, credit Cash for $5,000, and credit Notes Payable for $15,000.

Step-by-step explanation:

The student's question is incorrect as the journal entry for the purchase of equipment costing $20,000, with $5,000 paid in cash and the remainder covered by a note payable, should be recorded as follows:

• Debit Equipment $20,000
• Credit Cash $5,000
• Credit Notes Payable $15,000

This entry reflects that the total value of the equipment is $20,000. The amount paid in cash is $5,000, which decreases the company's cash balance. The remaining $15,000 represents a liability in the form of a note payable, as this is the amount the company owes for the purchase of the equipment.