You are a staff accountant in a CPA firm. Your manager has asked you to provide

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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