1. b. Record the purchase in general journal format.
Alice Stitching Co. purchased a special purpose electronic sewing machine to cut various types and sizes of cloth. The machine had a list price of $80,000. The seller agreed to allow a 4 percent discount because Alice paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $1,600. Alice had to hire an individual to maintain the machine. Alice had to build a special platform to place the machine. The cost of the platform was $1,250. The machine operator was paid an annual salary of $25,000. The cost of the company’s theft insurance policy increased by $600 per year as a result of acquiring of the machine. The machine had a five-year useful life and an expected salvage value of $12,500.
Required
Determine the amount to be capitalized in an asset account for the purchase of the machine.
b. Record the purchase in general journal format.
Narration/Animation Script: In this exercise, we will calculate the amount to be capitalized in an asset account for the purchase of a machine. We will also record the purchase transaction in the general journal.