Wilmet College recently purchased new computing equipment for its library. The f

Question

Wilmet 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 $275,000; however, Wilmet 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 maturity date. 2. In addition to the amounts described in 1, Wilmet 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. 6. 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.

Explanation / Answer

What to capitalize: 1. The list price of the equipment was $275,000; however, Wilmet College qualified for an "education discount" of $25,000. 2. In addition to the amounts descibed in #1, Wilmet paid sales taxes of $15,000 @ the date of the purchase. 3. Freight charges for delivery of the equipment totaled $1000. 4. Installation costs related to the equipment amounted to $5000. What NOT to capitalize, and therefore expense: 5. During installation, one of the computer terminals was accidentally damaged by a library employee. It cost the college $500 to repair the damage. 6. As soon as the computers were installed, the college paid $4000 to print admissions brochures featuring the library's new, state-of-the-art computing facilities 1. The note, plus accrued interest charges of $4500, was paid promptly @ the maturity date. Total Capitalized = 250,000 + 15,000 + 1,000 + 5,000 = $271,000 Total Expensed = 500 + 4,000 + 4,500 = $9,000 So 271,000/5 = 54,200/year Yr 1 = 54,200 x .5 = $27,100

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