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Oaktree Company purchased new equipment and made the following expenditures: Purchase price $ 50,000 Sales tax...

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Accounting

Oaktree Company purchased new equipment and made the followingexpenditures: Purchase price $ 50,000 Sales tax 2,700 Freightcharges for shipment of equipment 750 Insurance on the equipmentfor the first year 950 Installation of equipment 1,500 Theequipment, including sales tax, was purchased on open account, withpayment due in 30 days. The other expenditures listed above werepaid in cash. Required: Prepare the necessary journal entries torecord the above expenditures. (If no entry is required for atransaction/event, select "No journal entry required" in the firstaccount field.)

Answer & Explanation Solved by verified expert
4.5 Ratings (813 Votes)

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)

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