Crown King Burgers purchased new soda machines for $900,000 and pays $100,000 for installation costs.One-half of the total cost or $500,000 is paid in cash;a note in the amount of $500,000 is signed.How should the company record this transaction?

Question

Quizplus · Accepted Answer

The general rule for tangible assets under the cost principle is that all reasonable and necessary costs to acquire and prepare an asset for use should be recorded as a cost of the asset.Installation costs are a necessary and reasonable cost of preparing an asset for use and should be added to the cost of the asset.
Debit Equipment for $1,000,000 (or $900,000 + $100,000),credit Cash for $500,000,and credit Notes Payable for $500,000.

Crown King Burgers Purchased New Soda Machines for $900,000 and Pays