You are a staff accountant in a CPA firm. Your manager has asked you to provide
ID: 2353550 • Letter: Y
Question
You are a staff accountant in a CPA firm. Your manager has asked you to provide a report containing accounting information on the following client:Global Inc. purchased a machine and incurred the following expenditures:
Purchase price
$20,000
Freight costs
$1,000
Sales tax
$2,000
Insurance on shipment
$200
Insurance for the first year on the machine
$500
Installation of the machine
$2,000
•Calculate the cost to be capitalized.
•Make an entry that will show which expenses will be capitalized when recording the machine on the books.
•Show the entry that will be recorded to expense the cost that will not be capitalized.
Explanation / Answer
Costs to be capitalized (all but 1st year insurance) DR Fixed assets 25,200 CR Cash 25,200 Costs to be expensed (first year insurance) DR Insurance expense 500 CR Cash 500
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