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 $26,600 cash payment and issuing a noninterset-bearing note for $91,200 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 1,900 shares of its own $10 par value common stock along with $26,600 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	Dr.	Cr.
Jan. 1, 2020	Equipment
	Cash

b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020
	To record interest.
Dec. 31, 2020
	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
Liabilities:
Note payable, net

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
	To record interest.
Dec. 31, 2021
	To record payment on note.
Dec. 31, 2021
	To record depreciation.

e. Assume instead that Sidelines exchanged 1,900 shares of its own $10 par value common stock along with $26,600 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	Dr.	Cr.
Jan. 1, 2020

Cash Prepaid Insurance Equipment Building Land Construction in Process Accumulated Depreciation Accounts Payable Property Tax Payable Asset Retirement Obligation Note Payable Discount on Note Payable Common Stock Paid-in Capital in Excess of ParCommon Stock Contribution Revenue Gain on Asset Exchange Accretion Expense Depreciation Expense Insurance Expense Interest Expense Repair Expense Loss on Asset Exchange Loss on Asset Replacement Loss on Construction of Building Loss on Disposal Loss on Settlement of Asset Retirement Obligation N/A