Question

ABC Inc. recently purchased an equipment. The price negotiated with the seller was $20,000. Aqua also paid sales tax of $2,000 on the purchase, maintenance contracts of $2,200 to cover ordinary repairs for the first year of operation, and shipping and preparation costs of $500. At what amount should the equipment be recorded on the balance sheet prior to recording depreciation expense?
a. 24,700
b. 22,000
c. 22,500
d. 26,800

Answer 1

Answer: $22500

Explanation:

The following information can be gotten from the question:

Price of equipment = $20,000

Sale tax = $2000

Maintenance cost = $2200

Shipping cost = $500

The amount that the equipment should be recorded on the balance sheet prior to recording depreciation expense will be calculated as:

Price = $20000

Add: Sales Tax = $2000

Add: Shipping & Preparation = $500

Price of the equipment before depriciation will then be:

= $20000 + $2000 + $500

= $22500