Orion Flour Mills purchased a new machine and made the following expenditures:Purchase price: $69,000Sales tax: 5,700Shipment of machine: $940Insurance on the machine for the first year: $640 Installation of machine: $1,880The machine, including sales tax, was purchased on account, with payment due in 30 days. The other expenditures listed above were paid in cash.Required:Record the above expenditures for the new machine. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

The insurance on the machine for the first year is not eligible for asset capitalization. Thus, no Journal entry required for this type of expenses in term of accounting recording of the new machinery purchase.

Explanation:

Following GAAP, the accounting treatment for Fixed Asset purchase requires the capitalization of all related expenses which are neccessary to bring the newly purchased asset to the ready-to-use stage.

As a result, besides purchase price, sales tax, shipment & installation cost should be capitalized, thus the value of asset to be recorded is $77,520 (69K + 5.7K + 0.94K + 1.88K).

The insurance cost is not mentioned to be compulsory, thus, it is not an neccessary expense for bring the machine to the ready-to-use stage. Besides, the insurance term is only for a year while the useful life of the machinery may be up to 5-7 years. That is why it is not capitalized and there is no journal entry requried.