Question

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

Purchase price $67,000
Sales tax 5,600
Shipment of machine 920
Insurance on the machine for the first year 620
Installation of machine 1,840

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

Debit: Machine $75,360

Debit: Insurance $620

Credit: Cash $3,380

Credit: Accounts Payable $72,600

Step-by-step explanation:

Before the journal is prepared, we have to do some calculations and provide explanation as follows:

Apart from the insurance cost which will be reports as just insurance expenses for the year, all other costs in the questions are relevant costs that will be added together as the costs of the machine equipment as follows:

Machine cost = Purchase price + Sales tax + Machine shipment + Machine Installation

= $67,000 + $5,600 + $920 + 1,840

Machine cost = $75,360

Account payable and cash can also be calculated as follows:

Account payable = Purchase price + Sales tax = $67,000 + $5,600 = $72,600

Cash = Machine shipment + Machine Installation + Machine insurance = $920 + 1,840 + $620 = $3,380

Journal entries

Debit: Machine $75,360

Debit: Insurance $620

Credit: Cash $3,380

Credit: Accounts Payable $72,600

Being the record of purchase of new machine

Note: Also see the journal entries in the attached as a complement to the above.