Question

The following expenditures relating to plant assets were made by Glenn Company during the first 2 months of 2014.

Indicate the account title to which each expenditure should be debited.
1.
Paid $7,000 of accrued taxes at the time the plant site was acquired.
choose an account title
Land Improvements
Equipment
Prepaid Insurance
License Expense
Land
2.
Paid $200 insurance to cover a possible accident loss on new factory machinery while the machinery was in transit.
choose an account title
Land
License Expense
Land Improvements
Equipment
Prepaid Insurance
3.
Paid $850 sales taxes on a new delivery truck.
choose an account title
Prepaid Insurance
Land
Land Improvements
License Expense
Equipment
4.
Paid $21,000 for parking lots and driveways on the new plant site.
choose an account title
Land
Equipment
Prepaid Insurance
Land Improvements
License Expense
5.
Paid $250 to have the company name and slogan painted on the new delivery truck.
choose an account title
Land Improvements
Equipment
Prepaid Insurance
License Expense
Land
6.
Paid $8,000 for installation of new factory machinery.
choose an account title
Equipment
Land Improvements
Prepaid Insurance
Land
License Expense
7.
Paid $900 for a 1-year accident insurance policy on the new delivery truck.
choose an account title
Land
Prepaid Insurance
Equipment
License Expense
Land Improvements
8.
Paid $75 motor vehicle license fee on the new truck.
choose an account title
Prepaid Insurance
Equipment
License Expense
Land
Land Improvements

Answer 1

1. LAND

All expenses that went into the preparation of a fixed assets such as land to make it available for use should be capitalized and this includes taxes.

2. EQUIPMENT.

As explained above, the expense here was incurred trying to get the machinery to be available for use so it should be capitalized.

3. EQUIPMENT.

The same logic as the above stands here as well.

4. LAND IMPROVEMENTS.

This expense does not fall under the primary purpose for which the site was acquired but is still an improvement so even though it will not be capitalized to land, it goes to Land Improvements.

5. EQUIPMENT.

The name and slogan are part of the preparation of the vehicle for use so need to be capitalized.

6. EQUIPMENT.

Installation costs are to be capitalized because they are necessary to ge the asset working.

7. PREPAID INSURANCE.

Period costs (costs that provide benefits for a year or less) are to be expensed and not capitalized which is why this is posted to prepaid insurance.

8. LICENSE EXPENSE.

Licenses typically last a year so this is a period cost that should be expensed.