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Acquisition Costs of Trucks

3. (Acquisition Costs of Trucks) Alexei Urmanov Corporation operates a retail computer
store. To improve delivery services to customers, the company purchases four new
trucks on April 1, 2004. 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 noninterest- bearing note with a face amount of $14,000. The note is
due April 1, 2005. Urmanov 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%.

3. Truck #3 has a list price of $16,000. It is acquired in exchange for a computer
system that Urmanov carries in inventory. The computer system cost $12,000 and
is normally sold by Urmanov for $15,200. Urmanov 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 Urmanov Corporation. The stock has a par value per share of
$10 and a market value of $13 per share.
Instructions
Prepare the appropriate journal entries for the foregoing transactions for Urmanov
Corporation.

Solution Preview

1. Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900.
The price at which the truck is acquired, that would be recorded. The list price is not used.
Truck #1 Dr 13,900.00
Cash Cr 13,900.00

2. Truck #2 has a list price of $16,000 and is acquired for a down payment of $2,000
cash and a noninterest- bearing note with a face amount of $14,000. The note is
due April 1, 2005. Urmanov 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%.

The note is non interest bearing, ...

Solution Summary

The solution explains the calculation of acquisition cost of trucks and the related journal entries.

$2.19