Shady Lanes installed automatic sprinkler systems on Sep 24/2020. The electrical work for the installation was $24,000. The invoice price of the sprinkler equipment was $280,000. Additional costs were $5,000 for delivery and $800 for insurance during transportation. During installation a sprinkler line was punctured and was replaced for $200. What is the cost of the sprinkler equipment and prepare journal entry? 

$309800

The journal entry will be :

2020

September 24 :

Sprinkler

Equipment A/c....Debit $309800

To Cash A/c.....Credit $309800

(Being the purchase of sprinkler equipment has been recorded)

Step-by-step explanation

The cost of the sprinkler equipment will include the cost of purchase including the expenses incurred to put it to use i.e delivery costs, transit insurance & installation electrical costs.

The cost of the Sprinkler equipment can be calculated as follows :

Cost of Purchase

+

Installation Electrical Costs

+

Delivery Costs

+

Transit insurance

$280000

+ $24000

+ $5000

+ $800

$309800

Note : Puncture Cost of $200 is a replacement cost and hence not to be capitalized.

The journal entry will be :

2020

September 24 :

Sprinkler

Equipment A/c....Debit $309800

To Cash A/c.....Credit $309800

(Being the purchase of sprinkler equipment has been recorded)