Question

Tristar Production Company began operations on September 1, 2016. Listed below are a number of transactions that occurred during its first four months of operations.

a. On September 1, the company acquired five acres of land with a building that will be used as a warehouse. Tristar paid $240,000 in cash for the property. According to appraisals, the land had a fair value of $169,000 and the building had a fair value of $91,000.
b. On September 1, Tristar signed a $54,000 noninterest-bearing note to purchase equipment. The $54,000 payment is due on September 1, 2022. Assume that 9% is a reasonable interest rate.
c. On September 15, a truck was donated to the corporation. Similar trucks were selling for $3,900.
d. On September 18, the company paid its lawyer $4,500 for organizing the corporation.
e. On October 10, Tristar purchased maintenance equipment for cash. The purchase price was $29,000 and $1,200 in freight charges also were paid.
f. On December 2, Tristar acquired various items of office equipment. The company was short of cash and could not pay the $6,900 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.
g. On December 10, the company acquired a tract of land at a cost of $34,000. It paid $4,500 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

Tristar Production Company

a. September 1, Debit Land $156,000

Debit Building $84,000

Credit Cash $240,000

To record the purchase of land, which had a fair value of $169,000 and building, which had a fair value of $91,000.

b. September 1, Debit Equipment $54,000

Credit Notes Payable $54,000

To record the purchase of equipment with a note.

Assume that 9% is a reasonable interest rate.

c. September 15, Debit Truck $3,900

Credit Donation $3,900

To record the receipt of a truck through donation.

d. September 18, Debit Attorney Fee $4,500

Credit Cash $4,500

To record the payment of legal fees for organizing the corporation.

e. October 10, Debit Maintenance Equipment $30,200

Credit Cash $30,200

To record the purchase of equipment for $29,000 and $1,200 in freight.

f. December 2, Debit Office equipment $6,900

Credit Common stock $6,900

To record the purchase of office equipment with 200 shares of no-par common stock in exchange for the equipment.

g. December 10, Debit Land $34,000

Credit Cash $4,500

Credit 11% Notes Payable $29,500

To record the purchase of land for cash and notes payable.

Step-by-step explanation:

a) Data and Calculations:

a. September 1, Land $156,000 Building $84,000 Cash $240,000

land had a fair value of $169,000 and the building had a fair value of $91,000.

b. September 1, Equipment $54,000 Notes Payable $54,000

Assume that 9% is a reasonable interest rate.

c. September 15, Truck $3,900 Donation $3,900

d. September 18, Attorney Fee $4,500 Cash $4,500

for organizing the corporation.

e. October 10, Maintenance Equipment $30,200 Cash $30,200

$29,000 and $1,200 in freight charges also were paid.

f. December 2, Office equipment $6,900 Common stock $6,900

200 shares of no-par common stock in exchange for the equipment.

g. December 10, Land $34,000 Cash $4,500 11% Note Payable $29,500