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The following items relate to the acquisition of a new machine by the Bohn Group Inc. On the right-hand side are a number of possible accounting treatments; on the left-hand side are a number of independent accounting situations:
| Situation | Accounting treatment | ||
| ____ | Invoice price of new machine, net of cash discount offered | (1) | Debit Machinery account |
| ____ | Cash discount on the above, which has not yet been taken | (2) | Debit an expense account for the current period |
| ____ | Anticipated first year’s savings in operating costs from use of new machine | (3) | Debit an asset other than the machine and write-off the asset separately from the machine |
| ____ | Two-year service contract on operations of new machine paid in full | (4) | Credit Machinery account |
| ____ | Cost of materials used while testing new machine | (5) | None of the above; explain what account would be appropriate, if applicable. |
| ____ | Cost of installing sound insulation in wall near machine so that nearby office employees will not be disturbed by it | ||
| ____ | Cost of removing machine that new machine replaces. | ||
Required: Indicate the appropriate accounting treatment for each situation. Record any assumptions that you think might be necessary for any given situation.
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