On January 1, 2021, Enigma Company sold an equipmentcosting P500,000 which had a carrying amount of P350,000,receiving a P125,000 down payment and, as additionalconsideration, a P400,000 noninterest bearing note due onJanuary 1, 2024.There was no established exchange price for the equipment,and the note had no ready market.The prevailing rate of interest for a note of this type atJanuary 1, 2021 was 12%. The present value of 1 at 12% forthree periods is 0.7118.Required:Prepare journal entries for 2021, 2022, 2023 and 2024.

Here, Enigma company sold the equipment in exchange of a non interest bearing note plus down…

Answered: Prepare journal entries for 2021, 2022,…

Business

Accounting

Prepare journal entries for 2021, 2022, 2023 and 2024.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

On January 1, 2021, Enigma Company sold an equipment
costing P500,000 which had a carrying amount of P350,000,
receiving a P125,000 down payment and, as additional
consideration, a P400,000 noninterest bearing note due on
January 1, 2024.
There was no established exchange price for the equipment,
and the note had no ready market.
The prevailing rate of interest for a note of this type at
January 1, 2021 was 12%. The present value of 1 at 12% for
three periods is 0.7118.
Required:
Prepare journal entries for 2021, 2022, 2023 and 2024.

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