Exercise 10-1 Cost of plant assets L.O. C1 Farha Co. purchases a machine for $11
ID: 2356791 • Letter: E
Question
Exercise 10-1 Cost of plant assets L.O. C1 Farha Co. purchases a machine for $11,500, terms 2/10, n/60, FOB shipping point. The seller prepaid the $260 freight charges, adding the amount to the invoice and bringing its total to $11,760. The machine requires special steel mounting and power connections costing $795. Another $375 is paid to assemble the machine and get it into operation. In moving the machine to its steel mounting, $190 in damages occurred. Materials costing $30 are used in adjusting the machine to produce a satisfactory product. The adjustments are normal for this machine and are not the result of the damages. Compute the cost recorded for this machine. (Farha pays for this machine within the cash discount period.) (Omit the "$" sign in your response.) Cost recorded= (.......................$) ?Explanation / Answer
Since the terms were FOB shipping point the buyer is responsible for the shipping costs. 11,760 The machine requires special steel mounting and power connections costing $795. Add 795 Another $375 is paid to assemble the machine and get it into operation. Add 375 In moving the machine to its steel mounting, $190 in damages occurred. Damages are not included. Materials costing $30 are used in adjusting the machine to produce a satisfactory product. Add 30 The adjustments are normal for this machine and are not the result of the damages. Compute the cost recorded for this machine. (Farha pays for this machine within the cash discount period.) Shipping charges are not included when calculating discount. 11,500 x 2% = $230 discount Subtract 230 11,760 + 795 + 375 + 30 - 230 = $12,730 recorded cost of machine
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