Question

Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $122,220. The seller agreed to allow a 5.00 percent discount because Southwest Milling paid cash. Delivery terms were FOB shipping point. Freight cost amounted to $2,700. Southwest Milling had to hire a specialist to calibrate the loader. The specialist’s fee was $920. The loader operator is paid an annual salary of $20,220. The cost of the company’s theft insurance policy increased by $1,540 per year as a result of acquiring the loader. The loader had a four-year useful life and an expected salvage value of $12,200.

Required

Determine the amount to be capitalized in the asset account for the purchase of the front-end loader. (Round your answers to the nearest whole dollar. Amounts to be deducted should be indicated with minus sign.)

	Costs that are to be capitalized: List price Total costs $0

Answer 1

Costs that are to be capitalized:
List Price	$122,220
Less: Discount (122,220*5%)	(6111)
Freight cost	2700
Specialist fees	920
Total costs	$119,729