Question

Ayesha Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment.

1) $60,400
2) $55,000
3) $57,400
4) $57,000

Answer 1

The total capitalized cost of the equipment purchased by Ayesha Corp. is calculated by summing the individual expenditures, which amounts to $229,800. This total will be recorded on the balance sheet and depreciated over the useful life of the equipment.

Step-by-step explanation:

The question is asking to calculate the amount that should be capitalized as the cost of equipment purchased by Ayesha Corp. The expenditures provided during the year for the equipment were $60,400, $55,000, $57,400, and $57,000. To capitalize an asset, it means to record a cost/expense on the balance sheet for the purposes of delaying full recognition of the expense. In many cases, such as with the purchase of equipment, the cost is spread out over the useful life of the equipment through the process of depreciation. However, without more detailed information about the nature of these expenditures or any additional expenses associated with the purchase (such as installation or transportation costs), we would traditionally sum these expenditures to determine the total capitalized cost of the equipment.

To do so, we simply add:

• $60,400
• $55,000
• $57,400
• $57,000

This gives us a total capitalized cost of $229,800. This total represents the amount that Ayesha Corp will record on its balance sheet for the equipment. It will then be depreciated according to the company's depreciation policy and relevant accounting standards over the period the equipment is expected to be used.