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Homework answers / question archive / Company purchased equipment for $400 cash

Company purchased equipment for $400 cash

Accounting

Company purchased equipment for $400 cash. Related expenditures were sales taxes $40, insurance during transit $30, oil for testing $20, one-year insurance policy $500, freight charges during transit $10, and $200 on oil to be used by the equipment in the first year. All costs are paid for cash. The cost of the equipment is: * $1,000 $500 $200 $100 None of the above
Journal entry for the acquisition of equipment will include: * Debit Cash and Credit Equipment. Credit Cash and Credit Equipment. Credit Cash and Debit Equipment. Debit Equipment and Credit Accounts Payable. Debit Equipment and Credit Accounts Receivables.

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Answer:

1)Option B($500)

The cost of equipment includes purchase price, sales taxes, transportation fees, insurance Paid to cover the item during shipment, assembly, installation and all other costs associated with making the item ready for use.

Therefore, cost of equipment=

Purchase price+ sales tax+ insurance during transit+ oil for testing+ freight charges during transit

=400+ 40+ 30+ 20+ 10

=$500

2)Option C(credit cash and debit equipment)

Journal entry for the acquisition of equipment

Equipment a/c. Dr. $500

To cash a/c. $500

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