Question

Orion Flour Mills purchased a new machine and made the following expenditures:

Purchase price $55,000
Sales tax 5,000
Shipment of machine 800
Insurance on the machine for the first year 500
Installation of machine 1,600

The machine, including sales tax, was purchased on account, with payment due in 30 days. The other expenditures listed above were paid in cash.

Required:
Record the above expenditures for the new machine.

Answer 1

Dr Equipment 62400

Dr Prepaid Insurance 500

Cr Cash 2900

Cr Accounts Payable 60,000

Step-by-step explanation:

Preparation of the journal entry to Record the above expenditures for the new machine.

Dr Equipment 62400

Dr Prepaid Insurance 500

Cr Cash 2900

Cr Accounts Payable 60,000

(62,400+500-2900)

Equipment:

Purchase price ($55,000) + Sales tax (5,000) + Shipping (800) + Installation (1,600) =

Total cost 62400

Cash:

Shipment of machine (800) + Insurance on the machine ((500)) +Installation of the machine (1,600) = 2900