The amount of sales tax paid on the purchase of machinery, which is now used in production, would be a debit to ________.

Question

BlackTom AI · Accepted Answer

The question asks where the sales tax paid on the purchase of machinery that will be used in production should be recorded.
Option 1: 'a deferred liability account' — This is not appropriate because sales tax on capital equipment is not a future liability; it is part of the cost of the asset, not a liability to be settled later.
Option 2: 'the machinery account' — Correct. The sales tax paid is part of the cost to acquire the asset and should be capitalized as part of the asset’s cost in the machinery (property, plant, and equipment) account.
Option 3: 'miscellaneous tax expense' — This would recognize the tax as an expense rather than as part of the asset’s cost. Since the asset will provide future benefits, capitalization aligns with accrual accounting and matching principles.
Option 4: 'accumulated depreciation for machinery' — This is a contra-asset account that reduces the asset’s book value over time. The initial tax cost is not depreciation; it is the initial capitalization amount. Depreciation will begin after capitalization, not at the point of purchase.
In summary, the appropriate accounting treatment is to add the sales tax to the machinery account to reflect the total cost of acquiring the asset for use in production, rather than treating it as a separate expense or liability.

The amount of sales tax paid on the purchase of machinery, which is now used in production, would be a debit to ________.

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