Exercise 10-3 (Acquisition Costs of Trucks)

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E10-3 (Acquisition Costs of Trucks) Kelly Clarkson Corporation

operates a retail computer store. To improve delivery services to customers,

the company purchases 4 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 down payment of $13,900.

Trucks 13,900

Cash 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 incremental borrowing rate of 8%.

Trucks 14,727.26*

Discount on Notes Payable 1272.74

Cash 2,000

Notes Payable 14,000

*PV of $14,000 @ 10% for 1 year =

$14,000 x .90909 = $12,727.26

$12,727.26 + $2,000 = $14,727.26

3) Truck #3

has a list price $16,000. It is acquired in exchange for a computer system that

Clarkson carries in inventory. The computer system costs $12,000 and is

normally sold by Clarkson for $15,200. Clarkson uses a perpetual inventory

system.

Trucks 15,200

Cost of Goods Sold 12,000

Inventory 12,000

Sales Revenue 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 Clarkson Corporation. The stock has a par value per share of

$10 and a market price of $13 per share.

Trucks 13,000

Common Stock 10,000

Paid-In Capital in

Excess of Par –

Common Stock 3,000

(1,000 shares x $13 = $13,000)

Instructions: Prepare the Journal Entries