During Year 1, Ashkar Company ordered a machine on January 1 at an invoice price

Question

During Year 1, Ashkar Company ordered a machine on January 1 at an invoice price of $21,000. On the date of delivery, January 2, the company paid $7,000 on the machine, with the balance on credit at 9 percent interest due in six months. On January 3, it paid $700 for freight on the machine. On January 5, Ashkar paid installation costs relating to the machine amounting to $2,300. On July 1, the company paid the balance due on the machine plus the interest. On December 31 (the end of the accounting period), Ashkar recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $4,400.

Required 1. Indicate the effects (accounts, amounts, and + or ) of each transaction on the accounting equation Use the following schedule: (If the transaction does not imp Liabilities Stockholders' Equity Date Assets January 1 January 2 anuary 3 January 5 July 1

Explanation / Answer

1)On date of order ,the transaction will not effect any accounts as it is not a financial transaction to be recorded in books

2)

**interest paid on note is charged to revenue as it is incurred after the asset is ready for use

3)depreciation expense = [cost -salvage]/useful life

             =[24000-4400]/10

               = $ 1960

4)

Date Asset = Liabilities + equity jan 1 NA NA NA Jan 2 +21000 machine 14000note payable -7000cash jan3 -700 cash 700 machine jan 5 -2300 cash 2300 machine july 1 -14315cash -14000 note payable -315 interest   [14000*.09*6/12]

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