Question

The following expenditures relating to plant assets were made by Adam Company during the first 2 months of 2020.

1. Paid $5,000 of accrued taxes at time plant site was acquired.
2. Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit.
3. Paid $850 sales taxes on new delivery truck.
4. Paid $17,500 for parking lots and driveways on new plant site.
5. Paid $250 to have company name and advertising slogan painted on new delivery truck.
6. Paid $8,000 for installation of new factory machinery.
7. Paid $900 for one-year accident insurance policy on new delivery truck.
8. Paid $75 motor vehicle license fee on the new truck

Required:
a. Explain the application of the cost principle in determining the acquisition cost of plant assets.
b. List the numbers of the foregoing transactions, and opposite each indicate the account title to which each expenditure should be debited.

Answer 1

Step-by-step explanation:

a.)

In terms of the cost principle, the cost of acquiring a plant asset involves all of the expenditures required to get this asset and also to get ready to serve it's purpose.

Cost is measurable by the cash amount paid for a transaction that has to do with money or the money equivalent paid when assets that are not cash are used as a means of payment.

the cash equivalent is the same as the fair market value of the assets that were given or received..

b )

the account title that expenditure should be debited

1. 5000 paid for land

2. 200 paid is for factory machine equipment

3. 850 paid for delivery truck is for equipment

4. 17500 paid for parking lot is for land improvement

5. 250 paid for companies name to be printed on truck is equipment

6. 8000 paid for installation is for equipment

7. 900 paid for insurance policy on truck is prepaid insurance

8. 75 paid as license fee is for license insurance