Question

Pharoah Company purchased machinery on January 1 at a list price of $270000, with credit terms 2/10, n/30. Payment was made within the discount period. Pharoah paid $79750 sales tax on the machinery and paid installation charges of $4800. Prior to installation, Pharoah paid $10900 to pour a concrete slab on which to place the machinery. What is the total cost of the new machinery

Answer 1

Answer: $360,050

Explanation:

The total cost of a fixed asset refers to all the cash that was paid to acquire the asset, transport it and then install it.

Cost of the new machinery is therefore = Discounted cost price + Sales tax + Installation charges + Concrete slab

= (270,000 * (1 - 2%)) + 79,750 + 4,800 + 10,900

= 264,600 + 79,750 + 4,800 + 10,900

= $360,050

Cost price was discounted by 2% as per the credit terms of 2/10 which means that there is a discount of 2% if the asset is paid for in 10 days.