The Gulp Convenience Store Chain Buys New Soda Machines for $450,000

question 106

Multiple Choice

The Gulp convenience store chain buys new soda machines for $450,000 and pays $50,000 for installation costs.One-half of the total cost or $250,000 is paid in cash; a note in the amount of $250,000 is signed.How should the company record this transaction?

• A) Debit Cash for $250,000, debit Notes Payable for $250,000, and credit Equipment for $500,000
• B) Debit Equipment for $500,000, credit Cash for $250,000, and credit Notes Payable for $250,000
• C) Debit cash for $250,000, debit Notes Payable for $250,000, credit Equipment for $450,000, and credit Operating Expenses for $50,000
• D) Debit Equipment for $450,000, debit Operating Expenses for $50,000, credit cash for $250,000, and credit Notes Payable for $250,000

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Definitions:

Qualified Pension Plan

A retirement plan that meets the requirements of the Internal Revenue Code, thereby offering tax advantages such as deferred taxation on earnings.

Nontaxable

Describes income or transactions that are not subject to income tax by law or specific exemption.

Fully Taxable

Income that is subject to tax at the regular rates without any deductions or exemptions.

Coverdell Education Savings Account

A tax-advantaged investment account in the United States designed to encourage savings to cover future education expenses.