Question

Oaktree Company purchased new equipment and made the following expenditures: Purchase price $ 45,000 Sales tax 2,200 Freight charges for shipment of equipment 700 Insurance on the equipment for the first year 900 Installation of equipment 1,000 The equipment, including sales tax, was purchased on open account, with payment due in 30 days. The other expenditures listed above were paid in cash. Required: Prepare the necessary journal entries to record the above expenditures. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer and Explanation:

The journal entries are shown below:

1. Equipment($45,000 + $2,200 + $700 + $1,000) $48,900

To Accounts payable $47,200 ($45,000 + $2,200)

To Cash $1,700

(Being the equipment is purchased on cash and credit)

Since the equipment is purchased so it would be debited and the other two accounts i.e account payable and the cash is credited

2.Prepaid insurance $900

To Cash $900

(Being the payment is recorded)

Since there is a prepaid insurance and the same is increased in assets so it would be debited and the cash is paid so it would be credited