On January 1 of the current year, Sidelines Company purchases equipment with an estimated 6-year useful life by making a $8,400 cash payment and issuing a noninterest-bearing note for $28,800 due in two years. The fair value of the equipment is unknown. An 11% annual interest rate is typical of this transaction. The company uses the effective interest method to amortize any discount on note payable and the straight-line method to determine depreciation expense.

Required c. Indicate what should be reported on the balance sheet related to this transaction as of December 31 of the current year.

d. Prepare the entry on December 31 of the next year to record (1) interest accrual (2) cash payment, and (3) depreciation expense.

e. Assume instead that Sidelines exchanged 600 shares of its own $10 par value common stock along with $8,400 cash for the equipment. At the date of the exchange, the stock was actively trading in the market at $40 per share. Prepare the entry to record the purchase of equipment.

Balance Sheet Dec. 31, Year 1 Assets: \begin{tabular}{l|ll} Equipment, net & $ & 26,479 \\ \hline Liabilities: & & \\ \hline Note payable, net & $26,229 \end{tabular} To record depreciation