E10-3 (Acquisition Costs of Trucks) Kelly Clarkson Corporation operates a retail
ID: 2420455 • Letter: E
Question
E10-3 (Acquisition Costs of Trucks) Kelly Clarkson Corporation operates a retail computer store. To im- prove delivery services to customers, the company purchases four new trucks on April 1, 2014. The terms of acquisition for each truck are described below.
1. Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900.
2. Truck #2 has a list price of $16,000 and is acquired for a down payment of $2,000 cash and a zero- interest-bearing note with a face amount of $14,000. The note is due April 1, 2015. Clarkson would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incre- mental borrowing rate of 8%.
3. Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that Clarkson carries in inventory. The computer system cost $12,000 and is normally sold by Clarkson for $15,200. Clarkson uses a perpetual inventory system. 4. Truck
#4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in Clarkson Corporation. The stock has a par value per share of $10 and a market price of $13 per share.
Instructions Prepare the appropriate journal entries for the above transactions for Clarkson Corporation.
Explanation / Answer
1. truck 1 a/c dr. $13900
To cash a/c $13900
being truck purchased for cash.
2. truck 2 a/c dr. $16000
To cash a/c $2000
To note payable a/c $14000
being truck purchased for cash and note payable.
3. truck 3 a/c dr. $15200
to inventory a/c $12000
to profit on exchange $3200
being truck purchase in exchange of inventory and profit on sale price booked.
4. truck a/c dr. $13000
To common stock a/c $10000
to premium on common stock a/c $3000
being common stock issued for purchase of truck.
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