Question

Oriole Company purchased equipment for $41600. Sales tax on the purchase was $2496. Other costs incurred were freight charges of $624, repairs of $364 for damage during installation, and installation costs of $696. What is the cost of the equipment

Answer 1

Answer:

The cost of the equipment is $45,416.

Explanation:

The cost of a newly purchased equipment is the addition of all relevant costs uncured in order to make the equipment ready for use.

The cost of the equipment includes costs such as purchase price, tax paid on the purchase, installation costs, etc.

However, any cost incurred to repair any damage to an equipment during installation is not part of equipment cost. Such repair costs are just ordinary expenses that are charged to the income statement during the period.

Based on the explanation above, the cost of the equipment by Oriole Company can be calculated as follows:

Equipment cost = Purchase price + Sales tax + Freight charges + Installation costs ..................... (1)

Since,

Purchase price = $41,600

Sales tax on the purchase = $2.496.

Freight charges = $624

Installation costs = $696.

Substituting the values into equation (1), we have:

Equipment cost = $41,600 + $2,496 + $624 + $696 = $45,416

Therefore, the cost of the equipment is $45,416.