Adjusting Entries: Shabbona Corporation operates a retail computer store. To imp

Question

Adjusting Entries: Shabbona Corporation operates a retail computer store. To improve delivery services to customers, the company purchased a new truck on April 1, 2010. The terms for the acquisition of the truck are: it has a list price of $16,000. It is acquired in exchange for a computer system that Shabbona carries in inventory. The computer system cost $12,000 and is normally sold by Shabbona for $15,200. Shabbona uses a perpetual inventory system. Write the journal entry to record the purchase of the truck. Write Dr. for debit and Cr. for credit. (Points : 10)

Explanation / Answer

1. Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900. April 1,2010 List price $15,000 Discount for cash payment 1,100 Purchase price (cash) for Truck 1 $13,900 2. Truck #2 has a list price of $20,000 and is acquired for a down payment of $2,000 cash and a zerointerest- bearing note with a face amount of $18,000. The note is due April 1, 2011. Shabbona would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%. Truck 2 Discounts on Notes Payable Cash $2,000 Notes Payable $18,000 3. Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that Shabbona carries in inventory. The computer system cost $12,000 and is normally sold by Shabbona for $15,200. Shabbona uses a perpetual inventory system. Truck 3 $15,200 Cost of Goods Sold $12,000 Inventory $12,000 Sales $15,200 4. Truck #4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in Shabbona Corporation. The stock has a par value per share of $10 and a market value of $13 per share. Truck 4 $13,000 Common Stock 10,000 Paid in Capital in Excess of Par 3,000

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