Accounting for the Acquisition of a Long-Term Asset Action Jackson Company acqui
ID: 2502358 • Letter: A
Question
Accounting for the Acquisition of a Long-Term Asset
Action Jackson Company acquired a new machine in order to expand its productive capacity. The
costs associated with the machine purchase were as follows:
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,000
Installation costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750
Cost of initial testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900
Sales tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,563
1. Make the journal entry to record the acquisition of the machine. Assume that all costs
were paid in cash.
2. Make the journal entry to record the acquisition of the machine. Assume that Action
Jackson signed a note payable for the $25,000 purchase price and paid the remaining
costs in cash.
Explanation / Answer
1](a) IF SALES TAX IS ALLOWED TO SET-OFF IT WILL NOT FORM PART OF THE ACQUISTION COST OF MACHINE.
DEBIT MACHINE [25000+750+900] = 26650
DEBIT SALES TAX PAID = 1563
CREDIT CASH = 28213
(b) IF SALES TAX IS NOT ALLOWED TO BE SET-OFF IT WILL FORM PART OF THE ACQUISTION COST OF MACHINE.
DEBIT MACHINE [25000+750+900+1563] = 28213
CREDIT CASH = 28213
2] ](a) IF SALES TAX IS ALLOWED TO SET-OFF IT WILL NOT FORM PART OF THE ACQUISTION COST OF MACHINE.
DEBIT MACHINE [25000+750+900] = 26650
DEBIT SALES TAX PAID = 1563
CREDIT NOTE PAYABLE = 25000
CREDIT CASH = 3213
(b) IF SALES TAX IS NOT ALLOWED TO BE SET-OFF IT WILL FORM PART OF THE ACQUISTION COST OF MACHINE.
DEBIT MACHINE [25000+750+900+1563] = 28213
CREDIT NOTE PAYABLE = 25000
CREDIT CASH = 3213