Question

Scotts Company purchased a $70,000 building and purchased five used desks for $500. What would the...

Scotts Company purchased a $70,000 building and purchased five used desks for $500. What would the debit portion of the entry to record the purchases include?

a. A Debit to Assets-Building $70,000 and a Debit to Assets-desks $500

b. A Debit to Assets-Building $70,000 and a Debit to Expense-desks $500

c. Debit to Expense $70,000 and a Debit to Assets-desks $500

d. A Debit to Expense $70,500

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Answer #2

Answer is b) A debit to Assets –Buildings $70,000 and a Debit to Expense – desks $500

Purchase of buildings is assets so buildings is debited for $70,000 and second hand desk purchased is charged to expense since the amount is not material and assuming the desks are required for routine operational purpose and life being less than 1 year. Purchase of buildings cannot be charged to expense account since benefit of building is expected to be beyond 1 year. Capital expenditure is always debited to asset account and revenue expenditure is debited to expense account.

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