Oaktree Company purchased a new machine and made the following expenditures:
Purchase price $45,000
Sales tax 2,200
Freight charges
for shipment of machine 700
Insurance on the machine
for the first year 900
Installation of machine 1,000
The machine, including sales tax, was purchased on open account, with payment due in 30 days. The other expenditures listed above were paid in cash.
Entry for equipment purchase:
____________________________
DR EQUIPMENT with the total of price + tax + freight + installation.
CR ACCOUNTS PAYABLE with the total of price + tax [because they were paid on account).
CR CASH with total of freight + installation [because they were paid cash).
Entry for non capitalized expenditures on equipment:
____________________________
DR PREPAID INSURANCE for $900
CR CASH for $900
What is the question?
The question is to prepare the necessary journal entries to record the above expenditures.
To calculate the total amount spent on the machine, we need to add up the purchase price, sales tax, freight charges, insurance, and installation costs.
1. Purchase price: $45,000
2. Sales tax: $2,200
3. Freight charges: $700
4. Insurance for the first year: $900
5. Installation: $1,000
To determine the total amount spent on the machine, add up these figures:
$45,000 + $2,200 + $700 + $900 + $1,000 = $49,800
Therefore, the total amount spent on the machine, including all expenditures, is $49,800.