Question
In January 2019, Cordova Company entered into a contract to acquire a new machine for its factory. The machine, which has a cash price of
In January 2019, Cordova Company entered into a contract to acquire a new machine for its factory. The machine, which has a cash price of $220,000, was paid for as follows: Down payment $70,000
Note payable in 4 equal annual payments starting in January 2020 $120,000
500 shares of Cordova preferred stock with a mutually agreed value of $100 per share (par value $100) $50,000
Fair rate of interest on the non-interest-bearing note 10%
Required: 1. Determine the cost of the machine. What principle guides the determination of the cost of the machine?
2. Prepare the journal entry to record the acquisition of the machine.
3. Next Level How would your answer change, if at all, if the $220,000 cash price were not available?
DATE | ACCOUNT TITLE | POST. REF. | DEBIT | CREDIT | |
---|---|---|---|---|---|
1 | Machine |
| 220,000 |
| |
2 | Discount on Notes Payable | ? |
|
| |
3 | Preferred Stock |
| 50,000 | ||
4 | Additional Paid-In Capital on Preferred Stock |
| ? | ||
5 | Notes Payable |
| 120,000 |
| |
6 | Cash |
| 70,000 |
Please show how you got these because I can't find the help needed within the text book and I am completely at a loss with little understanding. Thank you!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started