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Journal entries to record asset purchases with explanations

Mar 1
Purchased a truck for $30,000, w/a 5 year useful life and a $5,000 salvage value. Also paid 6% sales tax, $350 for the annual truck license, $500 to paint the truck w/ company colors and name, and $1500 for spare parts. All payments in cash

May 10
Purchased garage from neighboring business w/a 7.4%, 4 year, $75,000 note. The sellers book value for the garage was $42,750. The estimated remaining useful life of the garage is 10 years.

June 1
Paid $1,000 cash to relace (uninsured) garage windows broken during storm.

Aug 25
Purchased used office equipment for $14,700 cash. Sales tax was $825 freight costs $250, and reconditioning costs $900, all of which were paid in cash. The estimated useful life of the equipment is 3 years and salvage value is $500.

Oct 5
Purchased store equipment for $24,500 cash. Paid $1,470 in sales tax, $550 for repairs incurred from an accident during installation, $3,200 for a special base to house the equipment, and $2,600 for supplies to be used during periodic preventive maintenance. The estimated useful life of the equipment is 8 years and salvage value is $1,200.

Solution Summary

For each of the five transactions, the solution presents the journal entry complete with a good explanation to explain the entry. All five transactions concern whether certain ancillary costs should be capitalized with the cost of the new asset. The solution explains why or why not.

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