ExpertMedium1 markMultiple Choice
CPA · Question 22 · Area II: Balance Sheet Accounts
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?
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:
A.
$100,000
B.
$105,000
C.
$106,000
D.
$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
C
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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