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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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Determination of Acquisition Cost In January 2019, Cordova Company entered into a contract to acquire a new machine for its factory. The machine, which has a cash price of $215,000, was paid for as follows:

Chapter 10, Problem 4E, Determination of Acquisition Cost In January 2019, Cordova Company entered into a contract to

Required:

  1. 1. Determine the cost of the machine. What principle guides the determination of the cost of the machine?
  2. 2. Prepare the journal entry to record the acquisition of the machine.
  3. 3. Next Level How would your answer change, if at all, if the $215,000 cash price were not available?

1.

To determine

Ascertain the cost of machine and explain the principle that guides the calculation of the 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...

2.

To determine

Record the journal entry for the acquisition of the machine.

3.

To determine

State the manner in which the answer will change, if $215,000 of cash price is not available.

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