During 2014, Red Company acquired a new piece of equipment for its manufacturing process. In order to purchase the equipment, Red made a down payment of $50,000 and issued a $200,000 five-year, 7% note. The annual payment of principal and interest was to be $48,778. The market rate of interest for obligations of this kind is 12%. The present value factor for an ordinary annuity of 5 years at 12% is 3.604776.
Required:
a.Prepare the journal entry to record the acquisition.
b.Assume that the equipment had an established cash price of $220,000. Prepare the journal entry to record the transaction under this additional assumption.

Question

During 2014, Red Company acquired a new piece of equipment for its manufacturing process. In order to purchase the equipment, Red made a down payment of $50,000 and issued a $200,000 five-year, 7% note. The annual payment of principal and interest was to be $48,778. The market rate of interest for obligations of this kind is 12%. The present value factor for an ordinary annuity of 5 years at 12% is 3.604776.
Required: 
a.Prepare the journal entry to record the acquisition.
b.Assume that the equipment had an established cash price of $220,000. Prepare the journal entry to record the transaction under this additional assumption.

Quizplus · Accepted Answer

The Answer of During 2014, Red Company acquired a new piece of equipment for its manufacturing process. In order to purchase the equipment, Red made a down payment of $50,000 and issued a $200,000 five-year, 7% note. The annual payment of principal and interest was to be $48,778. The market rate of interest for obligations of this kind is 12%. The present value factor for an ordinary annuity of 5 years at 12% is 3.604776.
Required: 
a.Prepare the journal entry to record the acquisition.
b.Assume that the equipment had an established cash price of $220,000. Prepare the journal entry to record the transaction under this additional assumption.

During 2014, Red Company Acquired a New Piece of Equipment