Question

Trinkle Company made several purchases of long-term assets in 2018. The details of each purchase are presented here.

New Office Equipment

List price: $60,000; terms: 2/10, n/30; paid within the discount period.

Transportation-in: $1,500.

Installation: $2,500.

Cost to repair damage during unloading: $650.

Routine maintenance cost after eight months: $350.

Basket Purchase of Copier, Computer, and Scanner for $30,000 with Fair Market Values

Copier, $22,000.

Computer, $10,000.

Scanner, $8,000.

Land for New Warehouse with an Old Building Torn Down

Purchase price, $250,000.

Demolition of building, $18,000.

Lumber sold from old building, $6,000.

Grading in preparation for new building, $22,000.

Construction of new building, $510,000.

Required

In each of these cases, determine the amount of cost to be capitalized in the asset accounts.

Answer 1

To determine the amount of cost to be capitalized in the asset accounts, we need to consider the different costs associated with each purchase. For the New Office Equipment, the cost to be capitalized would be the list price minus the discount taken. For the Basket Purchase of Copier, Computer, and Scanner, the cost to be capitalized would be the purchase price plus the fair market value of each item. For the Land for New Warehouse with an Old Building Torn Down, the cost to be capitalized would be the purchase price of the land plus the various costs associated with the demolition and construction.

Step-by-step explanation:

To determine the amount of cost to be capitalized in the asset accounts, we need to consider the different costs associated with each purchase.

1. New Office Equipment: The cost to be capitalized would be the list price of $60,000, minus the discount taken within the discount period ($60,000 x 2% = $1,200).
2. Basket Purchase of Copier, Computer, and Scanner: The cost to be capitalized would be the purchase price of $30,000, plus the fair market value of each item (Copier: $22,000, Computer: $10,000, Scanner: $8,000), totaling $70,000.
3. Land for New Warehouse with an Old Building Torn Down: The cost to be capitalized would be the purchase price of the land ($250,000), plus the cost of demolition of the building ($18,000), minus the proceeds from selling the lumber from the old building ($6,000), plus the cost of grading in preparation for the new building ($22,000), plus the cost of construction of the new building ($510,000), totaling $794,000.

Answer 2

The cost to be capitalized in the asset accounts for the New Office Equipment is $63,800, for the Basket Purchase of a Copier, Computer, and Scanner is $30,000, and for the Land and Building is $800,000.

Step-by-step explanation:

In each of these cases, the cost to be capitalized in the asset accounts is the total cost incurred to acquire and prepare the assets for their intended use. Let's break down the costs for each case:

1. New Office Equipment:
   Total cost to be capitalized: $58,800 + $1,500 + $2,500 + $650 + $350 = $63,800

For the Basket Purchase, each asset's fair market value as a percentage of the total fair market value is calculated:

• The fair market value of Copier: $22,000 / $40,000 = 55%
• The fair market value of Computer: $10,000 / $40,000 = 25%
• The fair market value of Scanner: $8,000 / $40,000 = 20%

The cost to be capitalized for each asset is then calculated by multiplying the basket purchase cost by the respective percentage:

• Cost to be capitalized for Copier: $30,000 * 55% = $16,500
• Cost to be capitalized for Computer: $30,000 * 25% = $7,500
• Cost to be capitalized for Scanner: $30,000 * 20% = $6,000

Total cost to be capitalized for the Basket Purchase: $16,500 + $7,500 + $6,000 = $30,000

For the Land and Building case, the costs to be capitalized include:

• Purchase price of Land: $250,000
• Demolition of building: $18,000
• Grading in preparation for the new building: $22,000
• Construction of new building: $510,000

Total cost to be capitalized for Land and Building: $250,000 + $18,000 + $22,000 + $510,000 = $800,000