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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Acquisition Costs Voiture Company manufactures compact, energy-efficient cars. On April 1, it purchased a machine for its assembly line at a contract price of $400,000 with terms of 2/10, n/30. Voiture paid the contract price on April 8 and also incurred installation and transportation costs of $5,000, sales tax of $32,000, and testing costs of $2,000. During testing, the machine was accidentally damaged, so the company had to pay $1,000 to repair it.

Required:

Determine the cost of the machine. For each item excluded from property, plant and equipment, how would the item be classified in the financial statements?

To determine

Ascertain the cost of the machine and state the way in which the item will be classified in the financial statements, if each item is excluded from property, plant and equipment.

Explanation

Property, Plant, and Equipment:

Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.

Determination of cost:

The procurement or acquisition cost of “property, plant and equipment” comprises of all costs that are required to obtain the benefits to be derived from the asset.

ParticularsAmount
Machine (1)$431,000
Repair and maintenance expense$1,000

Table (1)

All those items excluded from property, plant and equipment, will be categorized either as a current asset on the financial statements or as an accompanying notes to financial statements.

Working note:

(1) Calculate the cost of machine:

Costofmachine=

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