Recording Purchase of Equipment through Debt and Equity

On January 1, 2020, Sidelines Company purchases equipment with an estimated 6-year useful life by making a $7,000 cash payment and issuing a noninterset-bearing note for $24,000 due in two years. The fair value of the the equipment is unknown. An 11% annual interest rate is typical of this transaction. The company uses the effective interest method to amortize interest expense and the straight-line method to estimate depreciation expense.

a. Prepare the entry to record the purchase on January 1, 2020. b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. e. Assume instead that Sidelines exchanged 500 shares of its own $10 par value common stock along with $7,000 cash for the equipment. At the date of the exchange, the stock was trading on the market at $40 per share. Prepare the entry to record the purchase of equipment.

a. Prepare the entry to record the purchase on January 1, 2020. Date Account Name Jan. 1, 2020 Equipment Dr. Cr. 0 0 0 Cash 0 O O O O O O 0 b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. Date Account Name Dr. Dec. 31, 2020 Cr. A 0 0 0 0 To record interest. Dec. 31, 2020 A 0 0 A 0 0 To record depreciation. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. Balance Sheet, Dec 31 2020 Assets: Equipment, net 0 Liabilities: Note payable, net $ 0 $ d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2021 0 o 0 A 0 0 To record interest. Dec. 31, 2021 0 0 0 o 0 To record payment on note. Dec. 31, 2021 A 0 o o o o To record depreciation. e. Assume instead that Sidelines exchanged 500 shares of its own $10 par value common stock along with $7,000 cash for the equipment. At the date of the exchange, the stock was trading on the market at $40 per share. Prepare the entry to record the purchase of equipment. Note: Record credit accounts in alphabetical order using the first letter of the account name. Date Account Name Jan. 1, 2020 0 Dr. Cr. 0 - 0 0 O O O O 0 0 0 O