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5 August, 11:27

Oaktree Company purchased new equipment and made the following expenditures:

Purchase price $ 64,000

Sales tax 4,100

Freight charges for shipment of equipment 890

Insurance on the equipment for the first year 1,090

Installation of equipment 2,900

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.)

1) Record the purchase of equipment

2) Record any expenditures not capitalized in the purchase of equipment

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Answers (1)
  1. 5 August, 11:55
    0
    The Journal entries are as follows:

    (1)

    Equipment A/c Dr. $71,890

    To cash $3,790

    To accounts payable $68,100

    (To record the purchase of equipment)

    Workings:

    Equipment value:

    = Purchase price + Sales tax + Freight charges for shipment of equipment + Installation of equipment

    = 64,000 + 4,100 + 890 + 2,900

    = $71,890

    Cash Paid:

    = Freight charges for shipment of equipment + Installation of equipment

    = 890 + 2,900

    = $3,790

    Accounts payable = Purchase price + Sales tax

    = 64,000 + 4,100

    = $68,100

    (2)

    Prepaid Insurance A/c Dr. $1,090

    To cash A/c $1,090

    (To record any expenditures not capitalized in the purchase of equipment)
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