posted by Bobbi Loffredo on .
Oaktree Company purchased a new machine and made the following expenditures:
Purchase price $45,000
Sales tax 2,200
for shipment of machine 700
Insurance on the machine
for the first year 900
Installation of machine 1,000
The machine, including sales tax, was purchased on open account, with payment due in 30 days. The other expenditures listed above were paid in cash.
What is the question?
The question is to prepare the necessary journal entries to record the above expenditures.
Entry for equipment purchase:
DR EQUIPMENT with the total of price + tax + freight + installation.
CR ACCOUNTS PAYABLE with the total of price + tax [because they were paid on account).
CR CASH with total of freight + installation [because they were paid cash).
Entry for non capitalized expenditures on equipment:
DR PREPAID INSURANCE for $900
CR CASH for $900