Question

The following expenditures relating to plant assets were made by Prather Company during the first 2 months of 2020. Opposite each of the following transactions indicate the account title to which each expenditure should be debited. No. Expenditures Plant Assets 1.Paid $5,000 of accrued taxes at time plant site was acquired. 2.Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit. 3.Paid $850 sales taxes on new delivery truck. 4.Paid $17,500 for parking lots and driveways on new plant site. 5.Paid $250 to have company name and advertising slogan painted on new delivery truck. 6.Paid $8,000 for installation of new factory machinery. 7.Paid $900 for one-year accident insurance policy on new delivery truck. 8.Paid $75 motor vehicle license fee on the new truck.

Answer 1

Answer: Please refer to Explanation

Explanation:

1.Paid $5,000 of accrued taxes at time plant site was acquired.

LAND ACCOUNT because it is to be capitalized as it was part of the Acquisition Cost.

2.Paid $200 insurance to cover possible accident loss on new factory machinery while the machinery was in transit.

EQUIPMENT ACCOUNT as it is part of Acquisition Cost.

3.Paid $850 sales taxes on new delivery truck.

EQUIPMENT ACCOUNT as it is again part of Acquisition Cost.

4.Paid $17,500 for parking lots and driveways on new plant site.

LAND IMPROVEMENT ACCOUNT

5.Paid $250 to have company name and advertising slogan painted on new delivery truck.

EQUIPMENT ACCOUNT as it is a cost of setting the PPE up.

6.Paid $8,000 for installation of new factory machinery.

EQUIPMENT ACCOUNT as this expense is again part of setting the equipment up.

7.Paid $900 for one-year accident insurance policy on new delivery truck.

PREPAID INSURANCE because this is a periodic cost and those are not capitalized as they provide only a short term benefit.

8.Paid $75 motor vehicle license fee on the new truck.

LICENSE EXPENSE because it is also a period cost.