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tensa zangetsu [6.8K]
3 years ago
6

Bad Brads BBQ purchased a piece of equipment by paying $5,000 cash. They also incurred a shipping cost of $400 to get the equipm

ent to its factory. The fair value of this equipment is $7,000. For what amount should Bad Brads BBQ record the equipment?
Business
1 answer:
rodikova [14]3 years ago
5 0

Answer:

The $5,400 is the amount should Bad Brads BBQ record the equipment.

Explanation:

According to the Generally Accepted Accounting Principles (GAAP), the amount of asset is recorded at cost or fair market value which ever is lower.

The motive behind this is to present the financial statement in true and fair value rather than mislead values.

Since in the given question, the equipment purchase cost is $5,000 and shipping charges is $400.

So,

The total cost is = Purchase cost + shipping charges

                          = $5,000 + $400

                          = $5,400

And, the fair market value is $7,000.

By using the above explanation, the $5400 is the lesser amount than the $7,000.

Hence, the $5,400 is the amount should Bad Brads BBQ record the equipment.

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Average rate of return =  14 %

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