Question

Grab Manufacturing Co. purchased a 10-ton draw press at a cost of $180,000 with terms of 5/15, n/45. Payment was made within the discount period. Shipping costs were $4,600, which included $200 for insurance in transit. Installation costs totaled $12,000, which included $4,000 for taking out a section of a wall and rebuilding it because the press was too large for the doorway. The capitalized cost of the 10-ton draw press is:

Answer 1

Answer:

See below.

Explanation:

Any cost that adds functionality to a capital asset or makes it usable is generally capitalized. These includes all the first time transit costs and or any installation costs. These costs are usually associated with the product as a one time cost rather than recurring annually.

The total cost then for the machine that is capitalized is,

= 180,000 + 4600 + 12000 = $196,600

The discount of 5% is deductible as this was not paid and will not be capitalized. So net total capitalized cost,

10-ton Draw = $196,600 - (180,000*0.05) = $187,600

Hope that helps.