2· 10.00 points Southwest illing Co. purchased a front-end loader to move stacks

Question

2· 10.00 points Southwest illing Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $140,000. The seller agreed to allow a 4 percent discount because Southwest Milling paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $1,200. Southwest Milling had to hire a specialist to calibrate the loader. The specialist's fee was $1,800. The loader operator is paid an annual salary of $60,000. The cost of the company's theft insurance policy increased by $800 per year as a result of acquiring the loader. The loader had a four-year useful life and an expected salvage value of $6,000 Determine the amount to be capitalized in an asset account for the purchase of the loader. (Amounts to be deducted should be indicated with minus sign.) a. Costs that are to be capitalized List price costs b. Record the purchase in general journal format (If no entry is required for a transaction/event, select No journal entry required" in the first account field.) 5 esc F3 F5 7 4

Explanation / Answer

A. Costs that are to be capitalized:

List price=$140,000

Less: discount(140,000×4%)=(5,600)

Freight cost=$1,200

Specialist fee=$1,800

Total costs=$137,400

B.

Event General journal debit Credit 1. Equipment(140,000-5600) $134,400 Cash $134,400 (To record purchase of equipment) 2. Equipment $1,200 Cash $1200 (To record payment of freight) 3. Equipment $1,800 Cash $1,800 (To record payment of specialist fee)

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