Question 1: Boston Dollar Store uses the gross method to record purchase discounts, and uses a perpetual inventory system. Boston engaged in the following transactions during April:
4/12 Purchased $15,000 in merchandise subject to terms of 2/10, n30. The goods were shipped f.o.b. shipping point.
4/13 Received a billing from Orange Freight Lines for $300 for the 4/12 purchase.
4/15 Returned $1,000 of merchandise from the 4/12 purchase.
4/20 Paid balances due from 4/12 purchase.
Required: Prepare journal entries to record the above transactions.
Question 2: 1. Wendell Corporation exchanged an old truck and $25,500 cash for a new truck. The old truck had a book value of $6,000 (original cost of $25,000 less $19,000 in accumulated depreciation) and a fair value of $7,700.
Required:
1. Prepare the journal entry to record the exchange. Assume the exchange has commercial substance.
2. Prepare the journal entry to record the exchange assuming that the exchange lacks commercial substance.
Question 3: Cool Globe Inc. entered into two transactions, as follows:
1. Purchased equipment paying $20,000 down and signed a noninterest-bearing note requiring the balance to be paid in four annual installments of $20,000 on the anniversary date of the contract. Based on Bright Light's 12% borrowing rate for such transactions, the implicit interest cost is $19,253.
2. Purchased a tract of land in exchange for $10,000 cash down payment and a noninterest-bearing note requiring five $10,000 annual payments, with the first annual payment in one year. The fair value of the land is $46,000.
Required: Prepare the journal entries for these transactions.