Question

Adama Company incurred the following costs. Indicate to which account Adama would debit each of the costs.

Sales tax on factory
1. machinery purchased $5,000 Select the account to be debited
Equipment Prepaid
Insurance Building Land
Land Improvements
2. Painting of and lettering on
truck immediately upon purchase 700 Select the account to be debited
Land Prepaid
Insurance Equipment Building Land
Improvements
3. Installation and testing of
factory machinery 2,000 Select the account to be debited
Prepaid
Insurance Building Land Equipment Land
Improvements
4. Real estate broker’s
commission on land purchased 3,500 Select the account to be debited
Land Land Improvements Prepaid
Insurance Building Equipment
5. Insurance premium paid for
first year’s insurance on new truck 880 Select the account to be debited
Land Equipment Prepaid Insurance Land
Improvements Building
6. Cost of landscaping on
property purchased 7,200 Select the account to be debited
Equipment Land
Improvements Land Building Prepaid
Insurance
7. Cost of paving parking lot for
new building constructed 17,900 Select the account to be debited
Land
Improvements Land Building Prepaid
Insurance Equipment
8. Cost of clearing, draining,
and filling land 13,300 Select the account to be debited
Prepaid Insurance Land Land
Improvements Building Equipment
9. Architect’s fees on self-
constructed building 10,000

Answer 1

1. Insurance Equipment Building Land

2.Improvements

3.Insurance Building Land Equipment

4.Land

5.Prepaid Insurance

6.Improvements

7.Improvements

8.Land

9.Insurance Building Land Equipment

Step-by-step explanation:

1. Machinery purchased is a capital expenditure and is included in cost of Equipment.

2. Painting on truck is an improvement, not included in cost of truck

3. These are costs directly related in placing asset in condition of use intended by management. Include in asset cost.

4.These are costs directly related in placing asset in condition of use intended by management. Include in asset cost.

5.This is an asset and economic benefits will flow in the entity in future.

6. Landscaping costs not included in cost of property. Stand on their own as improvements

7. Paving costs not included in cost of property. Stand on their own as improvements

8.These are costs directly related in placing asset in condition of use intended by management. Include in asset cost.

9.These are costs directly related in placing asset in condition of use intended by management. Include in asset cost.