Answer:
Harmony Inc.
Expenditure Appropriate accounting treatment
a. Machinery $550,000 B. Capitalize to the Machine
b. Machinery $33,000 B. Capitalize to the Machine
Research and development $95,000 D. Expense.
c. Freight-in (Machinery) $4,250 B. Capitalize to the Machine
d. Installation, etc (Machinery) $16,500 B. Capitalize to the Machine
e. Prepaid Insurance $3,000 A. Capitalize to a different asset account.
Explanation:
1) Data and Analysis:
a. Machinery $550,000 Accounts payable $550,000
b. Machinery $33,000 Sales Tax Expense $33,000
Research and development $95,000 Cash $95,000
c. Freight-in (Machinery) $4,250 Accounts payable $4,250
d. Installation (Machinery) $16,500 Cash $16,500
e. Prepaid Insurance $3,000 Cash $3,000
b) The correct approach in capitalizing fixed assets and related costs is to follow this procedure: capitalize freight, sales tax, transportation, and installation, in addition to the fixed asset purchase cost.
