Exercise 7-2 Record purchase of equipment (LO7-1) Orion Flour Mills purchased a

Question

Exercise 7-2 Record purchase of equipment (LO7-1) Orion Flour Mills purchased a new machine and made the following expenditures: Purchase price Sales tax Shipment of machine Insurance on the machine for the first year Installation of machine $67,000 5,600 920 620 1,840 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

SOLUTION

Journal Entry-

The total cost of the machine-

Amount of cash = Shipping charges + Installation charges + Insurance

= $920 + $1,840 + $620 = $3,380

Accounts payable = Equipment + Cash

= $67,000 + $5,600 = $72,600

S.No. Accounts titles and Explanation Debit ($) Credit ($) 1. Equipment 75,360 Prepaid insurance 620 Cash 3,380 Accounts payable 72,600 (To record the purchase of equipment)

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