Question

Swifty 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 $32,850 and is acquired for a cash payment of $30,441.
2. Truck #2 has a list price of $35,040 and is acquired for a down payment of $4,380 cash and a zero-interest-bearing note with a face amount of $30,660. The note is due April 1, 2015. Clarkson would normally have to pay interest at a rate of 9% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.
3. Truck #3 has a list price of $35,040. It is acquired in exchange for a computer system that Clarkson carries in inventory. The computer system cost $26,280 and is normally sold by Clarkson for $33,288. Clarkson uses a perpetual inventory system.
4. Truck #4 has a list price of $30,660. It is acquired in exchange for 1,420 shares of common stock in Clarkson 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 Clarkson Corporation.

Answer 1

The Journal entries are as follows:

(i) On April 1, 2020

Truck 1 A/c Dr. $30,441

To cash $30,441

(To record the purchase of truck 1)

(ii) On April 1, 2020

Truck 2 A/c Dr. $32,508

Discount on notes payable A/c Dr. $2,532

To cash $4,380

To notes payable $30,660

(To record the purchase of truck 2)

Workings:

Truck 2 = $30,660 + $4,380 - $2,532

= $32,508

Discount on notes payable:

= $30,660 - present value of notes payable

= $30,660 - (30,660 ÷ 1.09)

= $2,532

(iii) On April 1, 2020

Truck 3 A/c Dr. $33,288

Cost of goods sold A/c Dr. $26,280

To Inventory $26,280

To sales $33,288

(To record the purchase of truck 3)

(iv) On April 1, 2020

Truck 4 A/c Dr. $18,460

To Common stock $14,200

To paid in capital in excess of par $4,260

(To record the purchase of truck 4, truck 4 has been acquired in exchange of shares of common stock)

Workings:

Common stock = $1,420 shares × $10 per share

= $14,200

Paid in capital in excess of par:

= $1,420 shares × $3 per share

= $4,260