BuyFindarrow_forward

Intermediate Accounting: Reporting...

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

Solutions

Chapter
Section
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
71 views

Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of $5,000 at the end of each of the next 5 years. Assume a prevailing interest rate of 15%. The present value of an ordinary annuity of $1 at 15% for 5 periods is 3.35. The future amount of an ordinary annuity of $1 at 15% for 5 periods is 6.74. The present value of $1 at 15% for 5 periods is 0.5. How much should Electro record as the cost of the machine?

  1. a. $12,500
  2. b. $16,750
  3. c. $25,000
  4. d. $33,700

To determine

State the amount at which the Corporation E must record its cost of the machine.

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.

Justification for the incorrect option a:

Amount of $12,500 is not recorded as the cost of the machine. Therefore, it is an incorrect option.

Justification for the incorrect option c:

Amount of $25,000 is not recorded as the cost of the machine. Therefore, it is an incorrect option.

Justification for the incorrect option d:

Amount of $33,700 is not recorded as the cost of the machine. Therefore, it is an incorrect option.

Justification for the correct option b:

Calculate the cost of the machine:

Costofmachine=

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Why is productivity important?

Essentials of Economics (MindTap Course List)

When is a set of DFDs balanced (i.e., leveled)?

Pkg Acc Infor Systems MS VISIO CD

PRESENT AND FUTURE VALUES Of A CASH FLOW STREAM An investment will pay 100 at the end of each of the next 3 sta...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)