Question

Young Corp. purchased equipment by making a down payment of $4,000 and issuing a note payable for $18,000. A payment of $6,000 is to be made at the end of each year for three years. The applicable rate of interest is 8%. The present value of an ordinary annuity factor for three years at 8% is 2.58, and the present value for the future amount of a single sum of one dollar for three years at 8% is .735. Shipping charges for the equipment were $2,000, and installation charges were $3,500. What is the capitalized cost of the equipment?

Answer 1

Answer:

Total capitalized cost  24,980

Explanation:

The shipping and installation cost are capitalzied as they are cost needed to make the equipment ready to use.

The down payment will be in his full amount as it is done "today".

The the note, which is an annuity will be multiplied by the annuity factor

and the note

down payment:               4,000

shipping charges            2,000

installation                       3,500

6,000 annuity x 2.58 = 15,480  

Total capitalized cost  24,980