Kelly Clarkson Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2014. The terms of acquisition for each truck are described below.

1. Truck #1 has a list price of $51,765 and is acquired for a cash payment of $47,969.

2. Truck #2 has a list price of $55,216 and is acquired for a down payment of $6,902 cash and a zero-interest-bearing note with a face amount of $48,314. 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%.

3. Truck #3 has a list price of $55,216. It is acquired in exchange for a computer system that Clarkson carries in inventory. The computer system cost $41,412 and is normally sold by Clarkson for $52,455. Clarkson uses a perpetual inventory system.

4. Truck #4 has a list price of $48,314. It is acquired in exchange for 1,090 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.

Prepare the appropriate journal entries for the above transactions for Clarkson Corporation. (Round present value factors to 5 decimal places, e. g. 0.52500 and final answers to 0 decimal places, e. g. 5,275.)

truck ·1   47,969 debit

   cash          47,969 credit

truck ·2                 51,637.19 debit

discount on note 3.578,81‬ debit

   cash                           6,902  credit

  note payabe              48,314 credit

truck 52,455 debit

COGS  41,412 debit

   Inventory            41,415 credit

  Sales revenue   52,455 credit

truck                14,170 debit

  common stock         10,900 credit

  additioanl paid-in CS 3,270 credit

Explanation:

#1 the assets enter the accounting at their cost. the list price is disregard.

#2

the asset hould enter as their cash value without including cost like financiation such as interest therefore:

we must remove the implicit interest the dealership charge on the note:

48,314 / 1.08 = 44.735,19

48,314 - 44,735.19 = discount = 3.578,81‬

#3 the truck is being traded for the computer system.

55,216 - 41,412 =

total cost 44,735.19 + 6,902 = 51.637,19‬

#3 the truck is being acquired through a sale:

52,455 --> truck price

andwe also recognize the cost of good sold in the sale .

#4

common stock

1,090 x      $10        =    10,900

additional paid.-in  

1,090 x ($13 - $10)  =   $ 3,270

total: 14,170

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.