Trinkle Company made several purchases of long-term assets in 2018. The details
ID: 2570167 • Letter: T
Question
Trinkle Company made several purchases of long-term assets in 2018. The details of each purchase are presented here.
New Office Equipment
List price: $60,000; terms: 2/10, n/30; paid within the discount period.
Transportation-in: $1,500.
Installation: $2,500.
Cost to repair damage during unloading: $650.
Routine maintenance cost after eight months: $350.
Basket Purchase of Copier, Computer, and Scanner for $30,000 with Fair Market Values
Copier, $22,000.
Computer, $10,000.
Scanner, $8,000.
Land for New Warehouse with an Old Building Torn Down
Purchase price, $250,000.
Demolition of building, $18,000.
Lumber sold from old building, $6,000.
Grading in preparation for new building, $22,000.
Construction of new building, $510,000.
Required
In each of these cases, determine the amount of cost to be capitalized in the asset accounts.
Office equipment:
Basket purchase:
Land and building:
Allocated Costs Asset Office equipmentExplanation / Answer
532,000
Office Equipment: Asset Allocated Cost Purchase Price 60000 (-) Discount 1200 Net Purchase Price 58800 (+)Transportation Cost 1500 (+)Installation 2500 Total Cost Capitalized 62800 As the Company paid for the equipment within the discount period , 2% discount is availed by the Company. 60000*2% = 1200 The Transportation and Installation cost to be capitalised as this is incurred to put to use the equipment. Cost of repair and Routine Maintainence cost not to be capitalized but to be shown as Revenue Expenditure as this does not increase the asset life but it is normal expenditure incurred. Basket Purchase Asset Allocated Cost Copier 16,500 Computer 7,500 Scanner 6,000 Total Cost Capitalized 30,000 As the company has done the Basket Purchase for Copier , Computer and Scanner for $30,000 , so it has been proportioned as per fair market values. Copier 30,000/40000*22000 16,500 Computer 30,000/40000*10000 7,500 Scanner 30,000/40000*8000 6,000 30,000 Land and Building : Cost of Land: Total Purchase Price 250,000 (+)Demolition of Old building 18,000 268,000 Construction Cost: Grading in preparation for new building 22,000 Construction of new building 510,000532,000
Total Cost Capitalized 800,000 Cost of Demolition to be capitalized because the land is acquired for a new warehouse but with the Old torn out building. So as this was acquired to demolish and construct a new building so it has to be capitalized.Related Questions
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