Question

Keystone, Inc., replaced its truck-and-dolley system of moving inventory around its plant with a computer-controlled conveyor system. The costs associated with this equipment replacement were as follows: Purchase price of conveyor system$1,300,000 Book value of truck-and-dolley system50,000 Installation cost of new conveyor system85,000 The truck-and-dolley system was sold for scrap for $70,000. What value should be capitalized to the balance sheet of Keystone, Inc., as the cost basis of the new conveyor system

Answer 1

Answer: See explanation

Explanation:

The cost basis for the new conveyor system will be:

Purchase price = $1,300,000

Add : Installation cost = $85,000

Therefore, Cost of new conveyor system will be:

= $1,300,000 + $85,000

= $1,385,000

The gain on the sale of old truck will be $70000 - $50000 = $20,000 whcinwill be credited to the income statement.