Question

Lindy's Flowers, Etc. purchased a delivery van for $60,000. The company was given a $4,000 cash discount by the dealer, and paid $5,000 sales tax and $2,000 to get the logo and advertising painted on the van. Annual insurance on the van is $1,000. As a result of the purchase, by how much will Lindy's Flowers, Etc. debit the van account?

Answer 1

Answer:

debit the van account with $63,000

Explanation:

The Lindy's cost of the van is analyzed below:

Delivery van invoice price             $60,000

discount                                          ($4,000)

sales tax                                          $5,000

cost of logo and advertising          $2,000

annual insurance cost                     $0

Cost of the van                               $63,000

The sales tax is included as it cannot be reclaimed from the relevant tax authority.

Cost of logo and advertising even though looks like a revenue expense that should not be capitalized,but in actual terms is a cost incurred to bring asset to current position of being able to be recognized as belonging to Lindy's Flowers.