Question

Orion Flour Mills purchased a new machine and made the following expenditures: Purchase price $56,000
Sales tax 5,050
Shipment of machine 810
Insurance on the machine for the first year 510
Installation of machine 1,620
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.

Answer 1

Answer:

Debit  : Machine $58,430

Debit : Insurance expense $510

Debit : Sales tax $5,050

Credit : Cash $63,990

Being Cost of machine recognized as well as other expenses on the machine

Explanation:

The cost of the machine includes the purchase price plus any costs directly incurred in putting the asset in the location and condition indented by the management.

Cost of Machine is calculated as :

Purchase price                           $56,000

Shipment of machine                       $810

Installation of machine                  $1,620

Total                                            $58,430

Other Costs are recognized as expenses in the income statement and not as part of the asset.