38. For each of the items below, prepare the appropriate entry . 1. A motor in o

Question

38.     For each of the items below, prepare the appropriate entry.

1.        A motor in one of Excel’s trucks was overhauled at a cost of $2,500. Excel expects this overhaul will make the truck operated on a more efficient basis, i.e., the truck will get better gas mileage.

2.        James, a maintenance worker at Excel, spent the entire week unloading and setting up a new machine in Excel’s factory. James’ earned $1,500 that week, however, James will not be paid until the following week. (Do not worry about any withholdings from James’ pay.)

3.        Excel incurred and paid $1,600 for ordinary repairs on one of its machines.

4.        Excel incurred and paid $10,000 for adjustments to one of its machines. The adjustments will increase the useful life of the machine.

Explanation / Answer

the following are the required journal entries:

Number Account titles Debit Credit 1 Truck a/c $2,500 .......To Cash a/c $2,500 (overhaul expense capitalised since improved the efficiency of the trucK) 2 Machinery a/c $1,500 ... .........To Setup costs payable a/c $1,500 (set up costs incurred towards new machine will be capitalised, since it was incurred to make it ready for use). 3 Repairs and maintenance expense a/c $1,500 ............To Cash a/c $1,500 4 Machinery a/c $10,000 .............To Cash a/c $10,000 (since adjustments increase the useful life of machine , adjustments are capitalised)

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