Question

Two new copiers were purchased for use by the city clerk's office using General Fund resources. The copiers cost $15,000 each; the city's capitalization threshold is $5,000. Which of the following entries would be required to completely record this transaction?

a. Debit: Copiers Expense $30,000; Credit: Cash $30,000

b. Debit: General Capital Assets $30,000; Credit: Cash $30,000

c. Debit: Copiers Expense $30,000; Credit: General Capital Assets $30,000

d. Debit: Cash $30,000; Credit: General Capital Assets $30,000

Answer 1

The correct journal entry for the purchase of two copiers costing $15,000 each when the capitalization threshold is $5,000 is to debit General Capital Assets and credit Cash for $30,000.

Step-by-step explanation:

The correct answer to record the transaction of purchasing two new copiers for the city clerk's office using General Fund resources is: b. Debit: General Capital Assets $30,000; Credit: Cash $30,000.

The capitalization threshold is $5,000, and since the cost of each copier is $15,000, which is above the threshold, this transaction is capitalized rather than expensed.

Capital assets are long-term assets that are used in the operations of the business and have a useful life extending beyond a single reporting period.

Therefore, when the copiers are purchased, the general capital assets should be debited because an asset is acquired, and cash should be credited to reflect the outflow of funds.

The correct entry to record the transaction would be:

Debit: General Capital Assets $30,000

Credit: Cash $30,000

This entry records the purchase of the two copiers with General Fund resources.

Since the cost of each copier is $15,000 and the city's capitalization threshold is $5,000, the total cost of the copiers exceeds the threshold, requiring them to be capitalized.

Therefore, the entry debits the General Capital Assets account to increase the value of the city's capital assets and credits the Cash account to reflect the payment made for the copiers.