Question

Exercise 8-1 Cost of plant assets LO C1

Rizio Co. purchases a machine for $12,300, terms 1/10, n/60, FOB shipping point. The seller prepaid the $278 freight charges, adding the amount to the invoice and bringing its total to $12,578. The machine requires special steel mounting and power connections costing $850. Another $401 is paid to assemble the machine and get it into operation. In moving the machine to its steel mounting, $265 in damages occurred. Materials costing $40 are used in adjusting the machine to produce a satisfactory product. The adjustments are normal for this machine and are not the result of the damages.
Complete the below table to calculate the cost recorded for this machine. (Rizio pays for this machine within the cash discount period.)

Answer 1

The cost recorded for the machine is calculated as follows:

Purchase price = $12,300

Freight charges = $278

Mounting and power connections = $850

Assembly = $401

Damages = $265

Adjustments = $40

Total Cost = $12,300 + $278 + $850 + $401 + $265 + $40 = $14,134

Less cash discount = 1% of ($12,300 + $278) = $141.34

Total Cost (after discount) = $14,134 - $141.34 = $13,992.66

Therefore, the cost recorded for the machine is $13,992.66.