Question

Mark's Markers purchased a new machine to use in the manufacturing process for $2,500. The sales tax was an additional $150 and the shipping charges were $200. One month after using the machine, a small part broke and needed repair. The cost of the repair was $900. How will Mark's Markers treat the costs for tax purposes?

Answer 1

Step-by-step explanation:

Given that

Purchase value of a new machine = $2,500

Sales tax = $150

Shipping charges = $200

After one month, The cost of repair = $900

So for the tax purposes, the total value of machine i.e

= Purchase value of a new machine + Sales tax + shipping charges

= $2,500 + $150 + $200

= $2,850

This whole amount is capitalized and it would also deprecated over its useful life

Whereas the cost of the repair is an expense so it would be charged instantly.