Recording Purchase of Equipment through Debt and Equity

On January $1$ of the current year, Sidelines Company purchases equipment with an estimated $6-$year useful life by making a $$5,600$ cash payment and issuing a noninterest$-$bearing note for $$19,200$ 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

a$.$ Prepare the entry to record the purchase on January $1$ of the current year.

b$.$ Prepare the entry on December $31$ of the current year to record $(1)$ interest expense and $(2)$ depreciation expense. 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 $400$ shares of its own $$10$ par value common stock along with $$5,600$ 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.

Purchase of Equipment with Debt

Purchase of Equipment with Equity

Note: Round answers to the nearest whole number for the following questions.

a$.$ Prepare the entry to record the purchase on January $1$ of the current year.

$\backslash$table$[[,$Account Name,Dr$.,$Cr$.],[,$Equipment,$0,],[,$Discount on Note Payable,$0,0],[,$Cash,$0,5\mathrm{.}600],[,$Note Payable,$0,19,200],[,$To record equinment purchase,,$]]$

b$.$ Prepare the entry on December $31$ of the current year to record $(1)$ interest expense and $(2)$ depreciation expense.

$\backslash$table$[[,$Account Name,Dr$.,$Cr$.,],[1.$ Dec. $31,$Interest Expense,$0,0,],[,$Discount on Note Payable,$0,0**,],[,$to recondinteres.,,,$]]$

$\backslash$table$[[$Account Name,Dr$.,$Cr$.],[2.$ DeC. $31,$Depreciation Expense,$0,0],[,$Accumulated Depreciation,$0,0**$