Question

(Acquisition Costs of Trucks) Kelly Clarkson Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2017. 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 \(14,000. The note is due April 1, 2018. Clarkson would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.
3. Truck #3 has a list price of \)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.

Short answer

Answer

1) Value of Trucks = $13,900

2) Value of Trucks = $14,727.26

3) Value of Trucks = $15,200

4) Common Stock = $3,000

Step-by-step solution

Meaning of Acquisition Cost

In accounting terms,acquisition cost alludes to the cost of acquiring a particular thing. There are three common business contexts when this term is used: mergers and acquisitions, fixed resources, and client acquisition.

 Step 2: (1) Preparing journal entries

Date	Particulars	Debit ($)	Credit ($)
	Trucks	13,9000.00
	Cash		13,900.00

(2) Preparing journal entries

Date	Particulars	Debit ($)	Credit ($)
	Trucks	14,727,26
	Discount on Notes Payable
	Cash	1,272.74	2,000.00
	Notes Payable

Working Notes:

For calculating the value of truck, the present value should be ascertained first.

Calculation of Present Value for Year 1

$$\begin{gathered} Presentvalue=FaceValue\times PVFactor \\ =\$14,000\times 0,90909 \\ =\$12,727.26 \end{gathered}$$

Calculation of value of trucks

$$\begin{gathered} TruckValue=PresentValue+DownPayment \\ =\$12,727.26+\$2,000 \\ =\$14,727.26 \end{gathered}$$

(3) Preparing journal entries

Date	Particulars	Debit $(\$)$	Credit$(\$)$
	Trucks	15,2000.00
	Cost of Good Sold	12,000.00
	Inventory		12,000.00
	Sales Revenue		15,200.00

Note: The selling (retail) price of the computer system appears to be a better measure of the fair worth of the consideration received than the list price of the vehicle (truck). Vehicles are frequently offered for less than the stated price.

(4) Preparing journal entries

Date	Particulars	Debit ($)$(\$)$	Credit ($)
	Trucks	13,000.00
	Common Stock		10,000.00
	Paid-in Capital in Excess of Par Common Stock		3,000.00

Working notes:

Calculation of common stock

$$\begin{gathered} CommonStock=Shares\times PerShareValue \\ =1,000\times \$13 \\ =\$13,000 \end{gathered}$$