Question

Hamlet College recently purchased new computing equipment for its library. The following information refers to the purchase and installation of this equipment.

1. The list price of the equipment was $285,000; however, Hamlet College qualified for an "education discount" of $25,000. It paid $50,000 cash for the equipment, and issued a three-month, 9 percent note payable for the remaining balance. The note, plus accrued interest charges of $4,500, was paid promptly at the note’s maturity date.
2. In addition to the amounts described in 1, Hamlet paid sales taxes of $15,000 at the date of purchase.
3. Freight charges for delivery of the equipment totaled $1,000.
4. Installation costs related to the equipment amounted to $5,000.
5. During installation, one of the computer terminals was accidentally damaged by a library employee. It cost the college $500 to repair this damage. As soon as the computers were installed, the college paid $4,000 to print admissions brochures featuring the library’s new, state-of-the-art computing facilities.

In one sentence, make a general statement summarizing the nature of expenditures that qualify for inclusion in the cost of plant assets such as computing equipment.

Answer 1

Expenditures that qualify for inclusion in the cost of plant assets, such as computing equipment, generally include the purchase price of the equipment, any applicable discounts, and any costs incurred to get the equipment ready for use.

Step-by-step explanation:

Expenditures that qualify for inclusion in the cost of plant assets, such as computing equipment, generally include the purchase price of the equipment, any applicable discounts, and any costs incurred to get the equipment ready for use. In the case of Hamlet College's equipment purchase, the list price of $285,000 minus the education discount of $25,000 gives a net purchase price of $260,000. The cash payment of $50,000 and the three-month, 9 percent note payable for the remaining balance ($260,000 - $50,000) would be included in the cost of the equipment. In addition, any accrued interest charges on the note (in this case, $4,500) would also be included.

Furthermore, sales taxes of $15,000, freight charges of $1,000, and installation costs of $5,000 would be included in the cost. However, the $500 repair cost for the damaged computer terminal and the $4,000 payment for printing admissions brochures featuring the new equipment would not be included in the cost of the equipment, as they are considered separate expenses related to the incident and advertising, respectively.

Answer 2

The amount paid or payable to bring an asset at present location and working condition should be capitalized.

Step-by-step explanation:

From the given question, it was asked to explain one sentence, in making general statement to outline the features of expenditures that qualify for addition in plant assets cost, like computing equipment.

So, the amount payable to get an asset at a current location and in a good working condition should be taken advantage on or capitalized