Question

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

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

Explain the application of the historical cost principle in determining the acquisition cost of plant assets.

Answer 1

1) Tax Payable

2) Property Plant and Equipment Asset

3) Motor Vehicle Asset

4) Property Plant and Equipment Asset

5) Advertising and Promotion Expense

6) Property Plant and Equipment Asset

7) Insurance Prepaid Asset

8) Motor Vehicle Asset

The Historical Cost of Plant Asset consists of Actual Purchase price and all Incidental Cost required to bring the asset to the point of use .

Step-by-step explanation:

1) Already Accrued

2) The insurance is required to bring in the machinery

3) Sales taxes on Fixed assets are capitalised

4) The improvement is necessary in material

5) Advertising Expense not necessary for the functioning of the delivery truck

6) Fixed Asset Purchase

7) Insurance Prepayment not necessary for the functioning of the delivery truck

8) The expense is necessary for the functioning of the delivery truck