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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 11, Problem 5MC
Textbook Problem
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Ngo Company purchased a truck for $54,000. Sales tax amounted to $5,400; shipping costs amounted to $1,200; and one-year registration of the truck was $100. What is the total amount of costs that should be capitalized?

A. $60,600

B. $66,100

C. $54,000

D. $59,400

To determine

Introduction:

Capitalization is the process by which a long-term asset is recorded on the balance sheet and its allocated costs are expensed on the income statement over the asset’s economic life.

To choose:

The correct option.

Explanation of Solution

Explanation for correct answer:

In the determination of capitalized costs, we do not consider just the initial cost of the asset; instead, we determine all of the costs necessary to place the asset into service.

The NGO Company would also include shipping costs and amount of sales tax while determining the total amount of costs that should be capitalized, so the total cost would be $60,600 as it’s shown below -

Total Cost
Purchase Price $54,000
Sales Tax (+) $5,400
Shipping Costs (+) $1,200
Total Cost

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Chapter 11 Solutions

Principles of Accounting Volume 1
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