The Sadie School District is considering six different options for purchasing new computer equipment.
REQUIRED: Show the journal entries that would be required in the district's general fund to recognize both the acquisition of the new computers and payment for them under each of these options. Which of these options would best achieve interperiod equity for the district? Why?
a. Buy the computers outright with cash; cost will be $60,000
b. Buy the computers and finance them with a $60,000, three-year, 10 percent note. The district will repay the note and pay the entire interest with a single payment of $79,860 when the note matures.
c. Buy the computers and finance them with a $60,000, three-year 10 percent installment note. The district will repay the note (plus interest) in three annual installments of $24,127 each.
d. Lease the computers under an operating lease, but prepay the entire rent ($60,000) in advance. (Assume it is the district's policy to use the purchases method for reporting prepayments.)
e. Lease the computers under a capital lease, requiring three end-of-year payments of $24,127.
f. Lease the computers under an operating lease, making three end-of-year payments of $24,127.

Question

Quizplus · Accepted Answer

The Answer of The Sadie School District is considering six different options for purchasing new computer equipment.
REQUIRED: Show the journal entries that would be required in the district's general fund to recognize both the acquisition of the new computers and payment for them under each of these options. Which of these options would best achieve interperiod equity for the district? Why?
a. Buy the computers outright with cash; cost will be $60,000
b. Buy the computers and finance them with a $60,000, three-year, 10 percent note. The district will repay the note and pay the entire interest with a single payment of $79,860 when the note matures.
c. Buy the computers and finance them with a $60,000, three-year 10 percent installment note. The district will repay the note (plus interest) in three annual installments of $24,127 each.
d. Lease the computers under an operating lease, but prepay the entire rent ($60,000) in advance. (Assume it is the district's policy to use the purchases method for reporting prepayments.)
e. Lease the computers under a capital lease, requiring three end-of-year payments of $24,127.
f. Lease the computers under an operating lease, making three end-of-year payments of $24,127.

The Sadie School District Is Considering Six Different Options for Purchasing