Question

E10.4 (LO 1) (Purchase and Self-Constructed Cost of Assets) Worf Co. both purchases and constructs various equipment it uses in its operations. The following items for two different types of equipment were recorded in random order during the calendar year 2020. Purchase Cash paid for equipment, including sales tax of $5,000 $105,000 Freight and insurance cost while in transit 2,000 Cost of moving equipment into place at factory 3,100 Wage cost for technicians to test equipment 4,000 Insurance premium paid during first year of operation on this equipment 1,500 Special plumbing fixtures required for new equipment 8,000 Repair cost incurred in first year of operations related to this equipment 1,300 Construction Material and purchased parts (gross cost $200,000; failed to take 2% cash $200,000 discount) Imputed interest on funds used during construction (stock financing) 14,000 Labor costs 190,000

Answer 1

Purchase cash paid bor equipment, induding les t o5000 $1050D0 Freight cost moving eipmet into place ot foctoy wages cost bo technicians to dest equipment Special puumbing fixues bequied ber new equipment and Insuvance,while in tvansit 2000 $3100 4000 2000 122,100 Total Cost Insurance premium paid aannot be capitalized ,bt expensed in profit or ss as costs aye not Yelated do bnng asset to the condit or locatioto operate maintain an asse in i normal state o Yepaiy COsts o ave con Sidered ordinary repair. su shoud be reorded operating ex penses and no t capitalized as

Construction Material and puvchased parts ( 200,000 x 0.48) labour costs $196,000 140,000 overhead costs [24000 t 30,000 50,000 Cose of installing eiment $4,Y0o Total Cost 440,MDo probit on self- onstruuted asset shoud only be yeoni zed whon the asset is sald to a third pabty No intrest is captol zed duming construtIt shoud be cost o boouing unds and tecded as expense treated a