Question

Anchor company purchased a manufacturing machine with a list price of $99,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and freight costs amounted to $5,000. anchor paid $7,200 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $9,400 for the first year of operation. Based on this information, the amount of cost recorded in the asset account would be:

a) $109,400
b) $109,000
c) $103,600
d) $100,000

Answer 1

The correct amount recorded in the asset account for Anchor company's manufacturing machine, including the purchase price after discount, freight, and installation/testing costs, is $109,220. Insurance costs are not included as they are a future operational expense, not a capitalizable cost.

Step-by-step explanation:

When calculating the cost recorded in the asset account for a piece of equipment like a manufacturing machine, we would include the purchase price after any discounts, freight costs, and installation and testing costs. In this scenario, Anchor company received a 2% cash discount on the list price of $99,000, so the discounted price is $99,000 - 2% of $99,000, which is $99,000 - $1,980 = $97,020. To this, we add the freight costs of $5,000 and installation and testing costs of $7,200, resulting in a total of $97,020 + $5,000 + $7,200 = $109,220. Insurance costs are not included in the asset cost because they are considered to be a future expense for the operation of the asset, and not a capitalizable cost. Therefore, the amount recorded in the asset account would be $109,220, which is not provided as an option in the multiple choices given in the question, indicating a possible error in the provided options.