Question

Costs of Acquiring Fixed Assets

Melinda Stoffers owns and operates ABC Print Co. During February, ABC Print Co. incurred the following costs (1-12 below) in acquiring two printing presses. One printing press was new, and the other was bought from a business that recently filed for bankruptcy.

a. Indicate which costs incurred in acquiring the new printing press (1-6 below) should be debited to the asset account.

Item Debited to asset account
1. Fee paid to factory representative for installation Yes or No
2. Freight Yes or No
3. Insurance while in transit
Yes or No

4. New parts to replace those damaged in unloading Yes or No
5. Sales tax on purchase price Yes or No
6. Special foundation Yes or No

b. Indicate which costs incurred in acquiring the used printing press (7-12 below) should be debited to the asset account.

Item Debited to asset account
7. Fees paid to attorney to review purchase agreement Yes or No
8. Freight Yes or No
9. Installation Yes or No
10. Repair of damage incurred in reconditioning the press Yes or No
11. Replacement of worn-out parts Yes or No
12. Vandalism repairs during installation Yes or No

Answer 1

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

No

Yes

No

Step-by-step explanation:

Answer 2

The answer is given below:

Step-by-step explanation:

a.

1.Yes

2.Yes

3.Yes

4.Yes

5.Yes

6. Yes

b.

7.No

8.Yes

9.Yes

10.No

11.No

12.No

As a rule of thumb,those costs which increase the value or useful life of asset should be capitalized where as those costs that are incurred to maintain the usage of asset are revenue expenditure and should be charged to income statement not the asset.