Question

Rizio Co. purchases a machine for $12,500, terms 2/10, n/60, FOB shipping point. Rizio paid within the discount period and took the $250 discount. Transportation costs of $360 were paid by Rizio. The machine required mounting and power connections costing $895. Another $475 is paid to assemble the machine and $40 of materials are used to get it into operation. During installation, the machine was damaged and $180 worth of repairs were made. In moving the machine to its steel mounting, $180 in damages occurred. Also, $40 of materials is used in adjusting the machine to produce a satisfactory product. The adjustments are normal for this machine and are not the result of the damages. Compute the cost recorded for this machine. (Rizio pays for this machine within the cash discount period.)

Answer 1

Answer:

Cost recorded for this machine = $14,240

Explanation:

Particulars                                       Amount

Invoice Price                                   $12,500

Less: Cash Discount                       $250 (12,500*2%)

Net Purchase Price                        $12,250

Add: Transportation Costs             $360

Add: Power Connections               $895

Add: Assemble Cost                       $475

Add: Material used                   $40

Add: Repair                                      $180

Add: Material used in adjusting      $40      

Amount to be capitalized              $14,240

Note: The repair cost is included because it is incurred before machine is put in operation.