Question

Granite Company purchased a machine costing $120,000, terms 1/10, n/30. The machine was shipped FOB shipping point and freight charges were $2,000. The machine requires special mounting and wiring connections costing $10,000. When installing the machine, $1,300 in damages occurred. Compute the cost recorded for this machine assuming Granite paid within the discount period:______
a) $118,800.
b) $129,800.
c) $120,100.
d) $132,100.
e) $130,800.

Answer 1

Answer:

e) $130,800.

Explanation:

The computation of the cost of the machine after considering the discount period is presented below:

= Purchase Price × (1 - discount rate) + Freight Charges + cost of special mounting and wiring connections

= $120,000 × (1 - 0.01) + $2,000 + $10,000

= $120,000 × 0.99 + $2,000 + $10,000

= $118,800 + $2,000 + $10,000

= $130,800

The damages cost is revenue expenditure and the same is not taken in the computation part