On July 1, 2011, Gadget Twin Manufacturing purchased new equipment from Acme Equ

Question

On July 1, 2011, Gadget Twin Manufacturing purchased new equipment from Acme Equipment Company that had a purchase price (including sales tax) of $86,112. Acme charged $1,920 to deliver the equipment and $7,680 to install it at Gadget Twin’s site. Gadget Twin’s accountant provided the payment for the equipment, delivery, and installation to Acme that day. Gadget Twin had its own master-level employees perform trial runs on the equipment. This took 9.6 hours, and those employees earn $30 per hour. During the trial runs, there was some damage to one of the walls beside the equipment. Gadget Twin’s maintenance staff repaired the wall. The cost for the maintenance wages was $96. All wages for trial runs and wall repair will be paid at the end of the following week.

GENERAL JOURNAL

   

Jul 1

  

   

   

  

           

  

   

   

           

  

   

   

           

  

   

   

                  

           

   

   

   

GENERAL JOURNAL

page

   

             DATE         DESCRIPTION DOC.
NO. POST.
REF. DEBIT CREDIT      1

Jul 1

  

   

   

  

1 2

           

  

   

   

2 3

           

  

   

   

3 4

           

  

   

   

                  

4 5

           

   

   

   

5

Explanation / Answer

All the cost incurred till the final installation of machine needs to be capitalise.In the above case all cost incurred is to be included as capital expenses.Details are as under:-

Purchase price (including sales tax) $86,112.

Delivery $1,920

installation $7,680

Labour Charge (9.6*30) $ 288

.Wall maintenance wages $ 96

Total cost to be capitalised $96096

Machine A/C --------Dr $96096

To Cash A/C $96096

(Being Machine Capitalised)

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