Question

Anchor Company purchased a manufacturing machine with a list price of $86,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and freight costs amounted to $2,400. Anchor paid $3,300 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $4,200 for the first year of operations.
Based on this information, the amount of cost recorded in the asset account would be:

a)$86,680

b)$84,280.

c)$94180

d)$89,980

Answer 1

Answer:

Option (d) is correct.

Explanation:

Given that,

List price = $86,000

Cash discount percent = 2%

freight costs = $2,400

Installation and testing = $3,300

Cost recorded in asset account:

= List price - Cash discount on the purchase + Freight + Installation and testing

= $86,000 - ($86,000 × 2%) + $2,400 + $3,300

= $89,980

Note:

The insurance cost is not included in the cost of asset, but is instead expenses during the first year.