On 1 September Northlake Nordic Centre Inc. buys a second groomer for 120,000, paying 20,000 in cash and financing the balance with a 6 % bank loan. Record the purchase.
On 1 September Northlake Nordic Centre Inc. buys a second groomer for 120,000, paying 20,000 in cash and financing the balance with a 6 % bank loan. Record the purchase.
Answer
Dr Equipment 120000; Cr Cash 20000; Cr Bank Loan Payable 100000
Accounts - Equipment - Cash - Bank Loan Payable - Interest Expense - Accounts Payable The asset goes on at its full cost — **Equipment** (debit) 120,000 — however it is paid for: **Cash** (credit) 20,000 and **Bank Loan Payable** (credit) 100,000. The trap is recording only the cash portion, which leaves 100,000 of asset and 100,000 of debt off the books while the trial balance still balances. No Interest Expense yet — no time has passed; Accounts Payable is for supplier invoices, not a bank loan.
Hermanson Vol 1 ch 9 (notes payable and interest — adapted shape 12); Dauderis & Annand §9.2, §9.5; Lyryx Intermediate FA Vol 1 §4.2 (concept map E4–E6)