In: Accounting
Oaktree Company purchased new equipment and made the following expenditures: Purchase price $ 50,000 Sales tax 2,700 Freight charges for shipment of equipment 750 Insurance on the equipment for the first year 950 Installation of equipment 1,500 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.)
Before passing the Journal entries we have to understand that the all the costs incurred for the installation of | ||||||
Equipment will be capitalized. In simple words all the expenses incurred to make the Equipment ready for use will be capitalized. | ||||||
Equipment | Accounts Payable | Cash | ||||
Purchase Price | $50,000 | Purchase Price | $50,000 | Freaight charges on shipment of Equipment | $750 | |
Sales Tax | $2,700 | Sales Tax | $2,700 | Installation of Equipment | $1,500 | |
Freaight charges on shipment of Equipment | $750 | Accounts payable shown in B.S | $52,700 | Accounts payable shown in B.S | $2,250 | |
Installation of Equipment | $1,500 | |||||
Equipment a.c shown in B.S | $54,950 | |||||
Journal Entries | Dr | Cr | ||||
a. | Equipment | $54,950 | ||||
Accounts Payable | $52,700 | |||||
Cash | $2,250 | |||||
(Equipment installed) | ||||||
b | Prepaid Insurance | $950 | ||||
Cash | $950 | |||||
(Prepaid Insurance paid in cash) |