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A capital acquisitions manager recently purchased equipment needed to begin production of new inventory. The listed purchase cost of the equipment from a vendor was $70,000. In addition, six other costs related to the equipment were incurred at the time of acquisition and in the first month of operations. These six related costs are displayed in the illustration Purchase Cost of Equipment and Six Related Costs Total = $110,000
Purchase Cost $70,000
1. Sales Tax $5,600
2. Shipping and Handling $6,200
3. Installation and Preparation $12,700
Purchase Cost of Equipment and Six Related Costs Total = $110,000
Purchase Cost $70,000
1. Sales Tax $5,600
2. Shipping and Handling $6,200
3. Installation and Preparation $12,700
4. Testing and Safety Inspection $8,400
5. Employee Training for Operations
5. Employee Training for Operations $5,500
6. Maintenance for First Month of Operations $1,600
Required:
1. Which costs represent normal costs that are necessary to get the asset in condition and location for its intended use?
2. Which costs typically would be related to operating the equipment once it's in use?
3. Record the summary entry for the $110,000 of expenditures related to the equipment (Assume all costs were paid in cash Employee training is incurred through salary costs.)

Sagot :

abiolataiwo2015

Answer:

1. $102,900

2. $7,100

3. (i) Dr Equipment $102,900

Cr Cash $102,900

(ii) Dr Employee Training Expenses $5,500

Cr Cash $5,500

(iii) Dr Repairs and Maintenance $ 1,600

Cr Cash $1,600

Explanation:

1. Calculation to determine Which costs represent normal costs that are necessary to get the asset in condition and location for its intended use

Purchase cost $ 70,000

Add Sales Tax cost $ 5,600

Add Shipping and handling $ 6,200

Add Installation and preparation $12,700

Add Testing and safety inspection $ 8,400

Total cost $102,900

Therefore The costs that represent normal costs that are necessary to get the asset in condition and location for its intended use will be $102,900

2. Calculation to determine Which costs typically would be related to operating the equipment once it's in use

Employee training for operation $ 5,500

Maintenance for the first month of operation $ 1,600

Total $ 7,100

Therefore The costs which typically would be related to operating the equipment once it's in use will be $7,100

3. Preparation of the journal entry to Record the summary entry for the $110,000 of expenditures related to the equipment

(i) Dr Equipment $102,900

Cr Cash $102,900

(ii) Dr Employee Training Expenses $5,500

Cr Cash $5,500

(iii) Dr Repairs and Maintenance $ 1,600

Cr Cash $1,600

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