Recording Purchase of Equipment through Debt and Equity On January 1, 2020, Sidelines Company purchases equipment with a

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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 $9,800 cash payment and
issuing a noninterset-bearing note for $33,600 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 700 shares of
its own $10 par value common stock along with $9,800 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.
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 700
shares of its own $10 par value common stock along with $9,800 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.