Textbook Problem

Cost of a Fixed Asset

Laurel Cleaners purchased an automatic dry cleaning machine for $165,000 from TGF Corporation on April 1, 2019. Laurel paid $25,000 in cash and signed a 5-year, 10% note for $140,000. Laurel will pay interest on the note each year on March 31, beginning in 2020. Transportation charges of $4,250 for the machine were paid by Laurel. Laurel also paid $1,500 for the living expenses of the TGF installation crew. Solvent, necessary to operate the machine, was acquired for $1,000. Of this amount, $800 of the solvent was used to test and adjust the machine.

Required:

1. Compute the cost of the new dry cleaning machine.

2. CONCEPTUAL CONNECTION Explain why you excluded any expenditures from the cost of the dry cleaning machine.