Question

A company credit card was used to purchase a new $250 computer monitor and a $125 cartridge for the office copier. The company capitalizes all equipment purchases over $150. Sales tax, at 8%, was added to the cost of both items.

Prepare the entry to record the purchase. (If no entry is required, select "No debit" or "No credit" in the account field. )

Answer 1

The purchase of a $250 computer monitor and a $125 copier cartridge, including 8% sales tax, results in capitalizing the monitor ($270) and expensing the cartridge ($135) with a total credit of $405 to Cash/Credit Cards Payable.

Step-by-step explanation:

To prepare the entry to record the purchase made with a company credit card for a new $250 computer monitor and a $125 cartridge for the office copier, including an 8% sales tax, we must first calculate the total cost including tax. The company capitalizes all equipment purchases over $150.

Here are the calculations:

• Monitor: $250 + ($250 × 0.08) = $250 + $20 = $270
• Cartridge: $125 + ($125 × 0.08) = $125 + $10 = $135

Since the company only capitalizes purchases over $150, the monitor will be capitalized, but the cartridge will be expensed. Therefore, we will have the following journal entry:

1. Debit Equipment (Monitor): $270
2. Debit Office Supplies Expense (Cartridge): $135
3. Credit Cash/Credit Cards Payable: $405

Answer 2

To record the company's purchase of a computer monitor and a copier cartridge, including 8% sales tax, debit Equipment for $270 (monitor), debit Office Supplies Expense for $135 (cartridge), and credit Cash or Credit Card Payable for $405 in total.

Step-by-step explanation:

To prepare the entry to record the purchase of a new computer monitor and a cartridge for the office copier, we must first calculate the total cost including the sales tax. For the computer monitor priced at $250 with an 8% sales tax, the sales tax amount would be $250 × 0.08 = $20. For the cartridge priced at $125 with an 8% sales tax, the sales tax amount would be $125 × 0.08 = $10.

Thus, the total cost of the monitor including tax is $270, and the total cost of the cartridge including tax is $135. The company capitalizes all equipment purchases over $150, which in this case applies to the computer monitor. The cartridge does not meet the capitalization threshold, so it would be expensed.

Here is the journal entry to record the total transaction:

• 
  
• Debit Equipment (for monitor) - $270
• 
  
• Debit Office Supplies Expense (for cartridge) - $135
• 
  
• Credit Cash (or Credit Card Payable) - $405