Hi all, I was asked this question during a technical accounting interview.

A company received a $50,000 invoice for upgrading works on a PPE. The company made a 40% down payment on the invoice. No upgrading work has started yet. What are the correct journal entries?

Option 1:

Dr Prepayment 20,000
Cr Cash 20,000

Option 2:

Dr PPE 50,000
Cr Cash 20,000
Cr Accounts Payable 30,000