Question

Corian Company purchased equipment and incurred these costs: Cash price, $24,000; Sales taxes, $1,200; Insurance during transit, $200; Annual maintenance costs, $400. What amount should be recorded as the cost of the equipment?

Answer 1

The recorded cost of the equipment should be $25,400, which is the sum of the cash price, sales taxes, and insurance during transit. Annual maintenance costs are not included as they are considered operating expenses.

Step-by-step explanation:

The cost of equipment recorded on the company's books should include all expenditures necessary to acquire the equipment and prepare it for use. This includes the cash price, any sales taxes paid, and insurance during transit. The cash price of the equipment is $24,000, the sales taxes are $1,200, and the insurance during transit costs $200. Annual maintenance costs, however, are considered to be operating expenses and are not capitalized as part of the equipment cost. Accordingly, the amount recorded as the cost of the equipment should be $25,400 ($24,000 + $1,200 + $200).