Question

Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $123,530. The seller agreed to allow a 5.75 percent discount because Southwest Milling paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $2,310. Southwest Milling had to hire a specialist to calibrate the loader. The specialist’s fee was $920. The loader operator is paid an annual salary of $30,860. The cost of the company’s theft insurance policy increased by $1,980 per year as a result of acquiring the loader. The loader had a four-year useful life and an expected salvage value of $7,200.

Determine the amount to be capitalized in an assest accound for the purchase of the front end loader.

Answer 1

$119,657.025

Step-by-step explanation:

Given that,

Loader had a list price = $123,530

Discount = 5.75%

Freight cost = $2,310

Specialist’s fee = $920

Amount to be capitalized in an asset account for the purchase of the front end loader:

= List price - Discount + Freight cost + Specialist fees

= $123,530 - ($123,530 × 5.75%) + $2,310 + $920

= $123,530 - $7,102.975 + $2,310 + $920

= $119,657.025

Note: Operator salary and insurance cost are an operational expense, so will not be capitalized.