Geddes Engineering Corporation purchased conveyor equipment with a list price of $50,000. Three independent cases that are related to the equipment follow. Assume that the equipment purchases are recorded gross.
I. Geddes paid cash for the equipment 15 days after the purchase, along with 5% GST (recoverable) and provincial sales tax of 53,500, both based on the purchase price. The vendor's credit terms were 1110, n/30.
2. Geddes traded in equipment with a book value of $2,000 (initial cost $40,000), and paid $40,500 in cash one month after the purchase. The old equipment could have been sold for $8,000 at the date of trade, but was accepted for a trade-in allowance of $9,500 on the new equipment.
3. Geddes gave the vendor a $10,000 cash down payment and a 9% note payable with blended principal and interest payments of $20,000 each, due at the end of each of the next two years.
Instructions
(a) Prepare the general journal entries that are required to record the acquisition and the subsequent payment in each of the three independent cases above. Round to the nearest dollar.
(b) Compare the treatment of the cash discount in item 1 above with the accounting for purchase discounts for inventories using the net method in Chapter 8.