Question

a company purchased a piece of equipment by paying $5,000 cash. a shipping cost of $400 to get the equipment to its factory was also incurred. the fair value of the equipment was $7,000 at the time of the purchase. for what amount should the company record the equipment? multiple choice $7,000 $5,000 $7,400 $5,400

Answer 1

The company should record the equipment for the fair value of $7,400, which includes the cash payment and shipping cost.

Step-by-step explanation:

The company should record the equipment for the fair value of $7,000 at the time of the purchase. This includes the cash payment of $5,000 and the shipping cost of $400. The fair value represents the actual worth of the equipment at the time of acquisition.

To determine the total amount to record for the equipment, you need to add the initial cost, the shipping cost, and the fair value together:

= $5,000 (initial cost) + $400 (shipping cost) + $7,000 (fair value)

= $7,400

Therefore, the company should record the equipment for $7,400.

Answer 2

The company should record the equipment at its fair value of $7,000.

Step-by-step explanation:

The company should record the equipment at the fair value, which is $7,000.

When recording the purchase of the equipment, the company should debit the Equipment account for $7,000 and credit the Cash account for $5,000. The shipping cost of $400 should also be debited to the Equipment account since it was necessary to get the equipment to the factory. Therefore, the total amount debited to the Equipment account would be $7,400. This would result in a net increase of $7,400 in the Equipment account, representing the fair value of the equipment.