On January 1, 2020, Pele Industries purchased a machine for use in its production process. Its...

On January 1, 2020, Pele Industries purchased a machine for use in its production process. Its cash price was R$35,000. Related expenditures included: sales tax R$2,200, shipping costs R$150, insurance during shipping R$80, installation and testing costs R$70, and R$100 of oil and lubricants to be used with the machinery during its first year of operations. Provide the journal entry to record the purchase of this machine on January 1, 2020.

Expert Solution

Pele Industries
Cash Price	$ 35,000.00
Sales Tax	$ 2,200.00
Shipping cost	$ 150.00
Insurance during shipping	$ 80.00
Installation and Testing cost	$ 70.00
Total Purchase Price	$ 37,500.00

Journal Entry to record the purchase of this machine on January 1,2020
General,Journal	Debit	Credit
Equipment	$ 37,500.00
Cash		$ 37,500.00
(Amount of Purchased of Equipment)

All expenses upto put to use an assets are capitalized.It includes purchase price,freight,Insurance,taxes,installation and testing charges etc.
Oil and Lubricants are not capitalized due to revenue nature of expenditure.
Revenue expenditure are also known as income statement expenditure.

ekkarill92 answered 1 year ago

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