A company purchased a machine for $100,000. They paid $2,000 for shipping, $3,000 for installation, $1,000 for insurance while in transit, and $500 for training employees to use the machine. What is the capitalized cost of the machine?

Answer options:

$100,000

$105,000

$106,000

$106,500

How to approach this question

Capitalize all costs necessary to get the asset ready for its intended use. Expense costs incurred after it is ready (like training).

Full Answer

C.$106,000✓ Correct

Capitalizable costs: Purchase price ($100k) + Freight-in ($2k) + Installation ($3k) + Insurance in transit ($1k) = $106,000.<br/>Training costs ($500) are expensed as incurred.

Common mistakes

Capitalizing training costs.

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