Question

Southwest Milling Co. purchased a front-end loader to move stacks of lumber. The loader had a list price of $123,360. The seller agreed to allow a 4.75 percent discount because Southwest Milling paid cash. Delivery terms were FOB shipping point. Transportation cost amounted to $2,900. Southwest Milling had to hire a specialist to calibrate the loader. The specialist's fee was $1,120. The loader operator is paid an annual salary of $16,340. The cost of the company's theft insurance policy increased by $2,040 per year as a result of acquiring the loader. The loader had a four-year useful life and an expected salvage value of $7,500. Required Determine the amount to be capitalized in an 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 capitalized: List price Total costs

Answer 1

Costs that are to be capitalized:
List price	123360
Less: Discount	(5860)	=123360*4.75%
Freight cost	2900
Specialist fee	1120
Total costs	121520

here cost of an assets means  costs include the purchase price and commissions, transportation, appraisals, warranties and installation and testing. means that these all cost is added to purchase price of assets and should be capitalized , The cost of an asset includes only costs required to purchase the asset and cost of the asset to its present location and condition.

means the costs after installation of asset unless significant are not capitalized.

that salary of loader operator and annual insurance expense are operating expenses, they are not included in the cost of loader. and these cost incurre every year so it is operating nature and not included cost of assets .