Question

On January 2, Novation Corp. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler $120,000 Carrying amount of old boiler 10,000 Fair value of old boiler 4,000 Installation cost of new boiler 16,000 The old boiler was sold for $4,000. What amount should Novation capitalize as the cost of the new boiler?

Answer 1

$136,000

Step-by-step explanation:

Purchase price of new boiler = $120,000

Carrying amount of old boiler = $10,000

Fair value of old boiler = $4,000

Installation cost of new boiler = $16,000

The selling cost of old boiler = $4,000

Now,

Capitalized cost of the new boiler

= Purchase price of the new boiler + Installation cost the new boiler

= $120,000 + $16,000

= $136,000