Question

Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $115,110 The seller agreed to allow a 6.00 percent discount because Southwest Milling paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $2.680 Southwest Milling had to hire a specialist to calibrate the loader The specialist's fee was $1,200. The loader operator is paid an annual salary of $30,480. The cost of the company's theft insurance policy increased by $1,970 per year as a result of a useful life and an expected salvage value of $9,400 cquiring the loader. The loader had a four-year

Answer 1

a. Determine the amount to be capitalized in an asset account for the purchase of the loader.

Costs that are to be capitalized :
List price	115110
Less discount (115110*6%)	-6,907
Freight cost	2680
Specialist fee	1200
Total costs	112,083

NOTE:Insurance cost and operator salary are operating expenses hence won't be capitalized.

b. Record the purchase in general journal format

Equipment Cash(115110-6907) (To record purchase of loader)	108,203 108,203
Equipment Cash (To capitalize freight )	2680 2680
Equipment Cash (To capitalize specialist fee)	1200 1200

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