CenterPoint® Accounting for Agriculture - Equipment Purchase with a Loan and a Trade-In

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Create Fixed Asset Items - Duration: 16 min 51 sec

Maintain Depreciation- Duration: 6 min 15 sec

Depreciation Transactions- Duration: 6 min 38 sec

Fixed Asset Tips

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The purchase of equipment requires adjusting multiple accounts. The trade of old equipment, paying off an old loan, creating a new loan, loan fees, a down payment, and the new fixed asset purchase can all be recorded in one general journal.

Note: We recommend you speak with your accountant prior to entering this journal entry as they may want you to continue depreciating the traded asset instead of rolling the remaining value to the new asset, as this document describes.

 

 

Prerequisites

Prior to starting the transaction, you will need to know the current book value of the existing assets and loans that are part of the trade. To find the current book value of fixed assets:

  • To find the current book value of fixed assets, select Setup > Fixed Assets > Fixed Assets > Balances or select Reports > Reports > Fixed Assets > Fixed Asset Activity report.
  • To find the loan balances and accumulated depreciation balances, select Setup > Accounts > Accounts > Balances tab.

This document contains the following steps:

Equipment Purchase with a Trade and a Loan

Step A: Asset Purchased - Create New Fixed Asset

Step B: Asset Traded

Step C: Accumulated Depreciation (if you are not using accumulated depreciation, skip to step D)

Step D: Record Gain\Loss on Traded Item

Step E: Pay Off Old Loan

Step F: Interest Payment on Old Loan

Step G: Loan Fees

Step H: Cash Down Payment

Step I: Create a New Loan

Step J: Complete Journal Entry

Equipment Purchase with a Trade and a Loan

Example: A company purchased a 2012 Truck for $38,000 with a $4,000 cash down payment and a new loan of $26,275. A 2009 GMC Pickup was traded in with a $34,075 Book Value, Accumulated Depreciation of $25,900, a loan balance of $3,800 (with legal fees of $390 and interest of $85). They received $12.000 for the trade in resulting in a Gain of $3,825 (12,000 – (34,075-25,900)).
  1. Select Processes > General Journal Entries.
  2. Select the Company.
  3. In the Name box select the equipment dealer.
  4. In the Transaction Type, select General Journal Cash/Accrual.
  5. In the Date box, enter the purchase date.

Step A: Asset Purchased - Create New Fixed Asset

  1. In the first Account field, right-click and select New Fixed Asset Item.
  2. Enter the Name for the new fixed asset, for example 2012 Pickup Truck.
  3. In the Assets box, select the group for the new fixed asset.
  4. Enter other details for the new fixed asset, such as Depreciation Expense and Accumulated Depreciation Account
  5. Click Save.
  6. In the Debit column, enter the amount paid for the new asset. Example, 38,000.

Step B: Asset Traded

  1. In the Account field, select the fixed asset that was traded, for example 2009 GMC Pickup. Enter the book value amount in the Credits column, for example $34,075.00.

Step C: Accumulated Depreciation (if you are not using accumulated depreciation, skip to step D)

  1. In the next Account field, select the Accumulated Depreciation account.
  2. In the Debits column, enter the total amount previously depreciated for the traded asset, for example $25,900.00.
  3. Right-click in the row and select Add/Remove Columns.
  4. Select the Associated Account field, then click OK.
  5. In the Associated Account field, tag the item by selecting the fixed asset traded in, for example 2009 GMC Pickup.
  6. If there was more than one asset traded, select the next fixed asset and repeat the same steps for this asset.

Step D: Record Gain\Loss on Traded Item

  1. In the next Account field, select the Gain\Loss on Sale of Assets account (If you have separate accounts for both gain and loss select the appropriate account.
  2. Enter the Amount of the gain or loss. This should be: Trade Value – (Book Value of Asset Traded – Accumulated Depreciation of Asset Traded) A loss should be a debit and a gain should be a credit. In this example enter a gain of 3,825.

Step E: Pay Off Old Loan

  1. In the next Account field, select the existing Loan account being paid off, for example 2009 Truck Loan.
  2. Enter the current book value in the Debits column, for example $3,800.
Note: Refer to the prerequisite above for instructions on finding the current book value of the existing loan.

Step F: Interest Payment on Old Loan

  1. In the next Account field, select the Interest expense account.
  2. Enter the Amount in the Debits column., for example $85.00.
  3. In the Associated Account field, tag the item by selecting the fixed asset traded in, for example 2009 Truck Loan.

Step G: Loan Fees

  1. In the next Account field, select the expense account for loan fees such as Legal services.
  2. Enter the fees in the Debits column, for example $390.00.

Step H: Cash Down Payment

  1. In the next Account field, select the bank account, for example First Nation Bank.
  2. Enter the down payment amount in the Credits column, for example $4000.00.

Step I: Create a New Loan

  1. In the next Account field, right-click and select New Account.
  2. Enter the Name for the loan. Note: Add “Loan” in the name so you are able to easily distinguish the loan from the asset in future transactions.), for example 2012 truck Loan.
  3. Select Liabilities in the Account Type.
  4. Select Equipment Loan in the Account Category. Other details can be added as needed.
  5. Click Save.
  6. Enter the amount of the loan in the Credits column, for example $26,275. (Alternately on the last line of the journal entry you can click on the Difference button on the screen and it will fill in the value of the last line).

Step J: Complete Journal Entry

  1. Enter a Notation if desired. The notation is recorded to all journals in a general journal transaction. As an option, you may add a column called line description to the grid to enter in a different description for each line of the journal entry.
  2. Click Save.

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