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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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A Cost of a Fixed Asset

Mist City Car Wash purchased a new brushless car-washing machine for one of its bays. The machine cost $41,700. Mist City borrowed the purchase price from its bank on a 1-year, 8% note payable. Mist City paid $975 to have the machine transported to its place of business and an additional $200 in shipping insurance. Mist City incurred the following costs as a part of the installation:

Chapter 7, Problem 69APSA, A Cost of a Fixed Asset Mist City Car Wash purchased a new brushless car-washing machine for one of

During the testing process, one of the motors became defective when soap and water entered the motor because its cover had not been installed properly by Mist City’s employees. The motor was replaced at a cost of $640.

Required:

1. Compute the cost of the car-washing machine.

2. CONCEPTUAL CONNECTION Explain why any costs were excluded from the cost of the machine.

To determine

(a)

Introduction:

As per the historical cost method fixed asset must be recorded at the exchange price when the asset is purchased. The cost must be recorded including all the expenditure that is incurred to purchase that asset.
To find: The total cost of the car washing machine.

Explanation

We will add all the price of machine as well as all the expenditure that is incurred to purchase that machine
Total cost = machine cost + transportation ...

To determine

(b)

To state:

The cost if any is excluded from the cost of car washing machine.

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