Question

On August 1, 2020, Waterway Industries purchased a new machine on a deferred payment basis. A down payment of $4300 was made and 4 annual installments of $25800 each are to be made beginning on September 1, 2020. The cash equivalent price of the machine was $97000. Due to an employee strike, Waterway could not install the machine immediately, and thus incurred $2200 of storage costs. Costs of installation (excluding the storage costs) amounted to $3700. The amount to be capitalized as the cost of the machine is

Answer 1

The amount to be capitalized as the cost of the machine is $134,000.

Step-by-step explanation:

From the question, relevant costs that can be capitalized are the following:

Cash equivalent price of the machine = $97000

Costs of installation (excluding the storage costs) = $3700

Every other costs incurred are regarded as expenses NOT capital costs.

Therefore, the amount to be capitalized as the cost of the machine can be calculated as follows:

Amount to be capitalized = Cash equivalent price of the machine + Costs of installation = $97,000 + $37,000 = $134,000