Question

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

Purchase price $55,000
Sales tax 5,000
Shipment of machine 800
Insurance on the machine for the first year 500
Installation of machine 1,600
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.
Transaction General Journal Debit Credit

Answer 1

Orion Flour Mills Journal entry

Dr Equipment 62,400

Dr Prepaid Insurance 500

Cr Cash 2,900

Cr Accounts Payable 60,000

Explanation:

Calculation for cost of equipment

Purchase price 55,000

Add: Sales tax 5,000

Add: Shipment of machine 800

Add: Installation 1,600

Total Cost of Equipment 62,400

Calculation for Cash

Shipment of machine 800

Add Insurance on the machine for the first year 500

Add Installation 1,600

Total Cash 2,900

Calculation for Accounts Payable

Purchase price 55,000

Add: Sales tax 5,000

Total Account payable 60,000