Question

in january, prahbu purchased for $90,000 a new machine for use in anexisting production line of his manufacturing business. assume thatthe machine is a unit of property and is not a material or supply.prahbu pays $2,500 to install the machine, and after the machine isinstalled, he pays $1,300 to perform a critical test on the machine toensure that it will operate in accordance with quality standards. onnovember 1, the critical test is complete, and prahbu places themachine in service on the production line. on december 3, prahbupays another $3,300 to perform periodic quality control testing afterthe machine is placed in service. how much will prahbu be required tocapitalize as the cost of the machine?

Answer 1

Prabhu will be required to capitalize a total cost of $98,060 for the machine.

Step-by-step explanation:

To calculate the capitalized cost of the machine, we need to consider the initial purchase price, installation costs, and any subsequent costs related to the machine. In this case, Prabhu purchased the machine for $90,000 and paid $2,500 for installation. These costs are capitalized. Additionally, Prabhu paid $1,300 for a critical test before placing the machine in service, $3,300 for periodic quality control testing after it was placed in service, and finally, $960 for another test.

The total capitalized cost of the machine will be:

1. 
   
3. Purchase price: $90,000
4. 
   
6. Installation cost: $2,500
7. 
   
9. Critical test cost: $1,300
10. 
    
12. Quality control testing costs: $3,300
13. 
    
15. Additional test cost: $960

Adding all these costs together, Prabhu will be required to capitalize a total cost of $98,060 for the machine.