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wayne company purchased a delivery truck with a $48000 list price. The company was given a $4800 cash discount by the dealer, and paid $2400 sales tax. Annual insurance on the truck is $1200. As a result of the purchase, by how much will wayne company increase its truck account?

User YassinMi
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Final answer:

Wayne Company will increase its truck account by the purchase price of the truck ($43,200 after the cash discount) plus the sales tax ($2,400), totaling $45,600. Annual insurance costs are expensed separately and do not contribute to the asset's recorded value.

Step-by-step explanation:

The Wayne Company purchased a delivery truck for business use, and the inquiry is regarding how much the company will increase its truck account as a result of this purchase. To determine the value that should be recorded in the company's truck account, also known as an asset account, one must consider the cost principle in accounting, which dictates that assets should be recorded at their cost at the time of acquisition.

Firstly, the list price of the truck is given as $48,000. However, Wayne Company received a $4,800 cash discount, meaning the truck was purchased for $43,200. In addition to this, Wayne Company paid $2,400 in sales tax. It's important to note that annual expenses such as insurance are not capitalized into the asset account; instead, these are expensed in the period in which they are incurred. Therefore, the $1,200 for annual insurance is not included in the truck account increase. Hence, the truck account would be increased by the purchase price of the truck ($43,200) plus the sales tax ($2,400), equalling $45,600. This is the value that Wayne Company should record as an asset for the delivery truck.

User Eduard Thamm
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