Question

Southwest milling co. purchased a front end loader to move stacks of lumber. the loader had a list price of $117,270. the seller agreed to allow 5.50 percent discount because southwest milling paid cash. delivery terms were FOB shipping point. Freight cost amounted to $2790. southwest milling had to hire a specialist to calibrate the loader. The specialist's fee was $990. The loader operator is paid an annual salary of $13,640. The cost of the company's theft insurance policy increased by $1,770 per year as a result of acquiring the loader. The loader had a four year useful life and an expected salvage value of $6,100.
a. Determine the amount to be capitalized in an assest accound for the purchase of the front end loader.

Answer 1

Answer:

Total cost of front end loader in asset account $ 114,600

Explanation:

Computation of total costs of front end loader

List price of equipment                                                             $  117,270

Discount on cash payment = 5.5 %  ( $ 117,270 * 5.5 %)         $ ( 6,450)

Net price of equipment                                                             $ 110,820    

Freight in costs                                                                            $   2,790

Calibration costs                                                                         $       990

Total cost of front end loader in asset account                      $ 114,600

The other data items such as the loader salary and additional insurance

premium are annual costs and are thus not to be added to the cost of the equipment.