Question

Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $117,640. The seller agreed to allow a 4.25 percent discount because Southwest Milling paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $2,000. Southwest Milling had to hire a specialist to calibrate the loader. The specialist’s fee was $760. The loader operator is paid an annual salary of $6,140. The cost of the company’s theft insurance policy increased by $2,220 per year as a result of acquiring the loader. The loader had a four-year useful life and an expected salvage value of $5,300.
Required:
1. Determine the amount to be capitalized in the asset account for the purchase of the front-end loader. (Round your answers to the nearest whole dollar. Amounts to be deducted should be indicated with minus sign.)

Answer 1

Answer:

Total amount to be capitalized in the asset account for the purchase of the front-end loader is $115,400

Explanation:

Insurance cost and operator salary are operational expenses and would not be capitalized.

Costs that are to be capitalized

List price = $117,640

Discount = $117,640 × 4.25% = ($ 5,000)

Freight costs = $2,000

Specialist fees = $760

Total amount to be capitalized in the asset account for the purchase of the front-end loader = $117,640 + $2,000 + $760 - $5,000

= $115,400