Prepare journal entries for sterling

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Reference no: EM132773557

The following events occurred during Sterling's December 31, 20X6, fiscal year:

i. On August 15, 20X6, Sterling issued a $250,000 note payable; the note bears interest at 7.5% and is payable in one year. Sterling classified the liability at fair value through profit or loss (FVPL) when it recorded the transaction in August because it intends to repurchase (or settle) the note in February 20X7. At December 31, 20X6, the fair value of the note was $252,000. The note is payable to Credit Financier Ltd. (CFL). It cost Sterling $2,500 to issue the note. This amount was expensed. Assume that interest expense for the note has been recorded correctly in the "interest expense - other" account.

ii. Seven years ago, in January 20X0, Sterling issued $3,000,000 of 10-year, 9% bonds that pay interest semi-annually on June 30 and December 31. The bonds were issued when the market rate was 8%. Bond issuance costs were $200,000. The December 31, 20X6, payment of the semi-annual interest was recorded as a debit to interest expense of $135,000 and a credit to cash of $135,000.

iii. In November 20X6, Sterling ordered a bigger motor and heavier-duty pulley and lifting system for its warehouse storage system currently under construction. The larger motor and the enhanced lifting system will enable Sterling to continue using the existing storage system for another seven years. With the current equipment, the system would only last two more years. The total cost of the motor, pulley and lifting system is US$84,000. When Sterling ordered the equipment on October 18, the exchange rate was C$1.00 = US$0.84. When the equipment was received on December 15, the exchange rate was C$1.00 = US$0.79. The equipment will be put into operation on January 1, 20X7. The equipment was correctly recorded when received.

On December 31, 20X6, the exchange rate was C$1.00 = US$0.81. On January 13, 20X7, when Sterling paid the invoice, the exchange rate was C$1.00 = US$0.85.

Estimates of other charges related to the purchase are as follows:

Customs and duties $ 4,500

Transportation $ 3,600

Installation and assembly (to date) $ 12,300

The invoices for these other charges were not received prior to year end and have not been accrued for. The installation and assembly work is being done by an independent contractor.

Problem 1: Prepare Journal entries

Reference no: EM132773557

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