During 2016, May Company purchased three pieces of machinery at an auction for t

Question

During 2016, May Company purchased three pieces of machinery at an auction for the lump sum of $190,000. It cost May $10,000 to have the machinery delivered and installed. The ,machinery was appraised at the following amounts:

Machine 1:                                                             $87,000

Machine 2:                                                             $120,000

Machine 3:                                                             $43,000

Machine 2 historical cost should be recorded at what amount?

A)$33,333

C)$96,000

Explanation / Answer

Total cost of machineries = lump sum payment + intstallation

= $190000 + $10000

= $200000

Total machineries appraised = $250000

Machinery 2 appraised at = $120000

Historical cost should be recorded at = 200000 * 120000/250000

= $96000

ANSWER = c) $96000

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