Question

Problem 8-25A Accounting for acquisition of assets including a basket purchase LO 8-1

Trinkle Co., Inc. made several purchases of long-term assets in Year 1. The details of each purchase are presented here.

New Office Equipment

1. List price: $35,800; terms: 2/10 n/30; paid within discount period.
2. Transportation-in: $900.
3. Installation: $410.
4. Cost to repair damage during unloading: $644.
5. Routine maintenance cost after six months: $160.

Basket Purchase of Copier, Computer, and Scanner for $53,800 with Fair Market Values

1. Copier, $25,272.
2. Computer, $7,128.
3. Scanner, $32,400.

Land for New Warehouse with an Old Building Torn Down

1. Purchase price, $83,900.
2. Demolition of building, $5,490.
3. Lumber sold from old building, $1,440.
4. Grading in preparation for new building, $9,600.
5. Construction of new building, $224,000.

Required
In each of these cases, determine the amount of cost to be capitalized in the asset accounts.

Office equipment:
  

Basket purchase:
  

Land and building:
  

Answer 1

1. Office equipment,
   1. As the discount allowed is cash discount is cash discount it is not considered, cost to be considered is 35800
   2. Transportation and installation are to be considered,
   3. Repairs for damage are not to be included because they don't add any value to the asset eventhough incurred before installing the equipment.
   4. Routine is not capitalised.
   5. Therefore cost to be capitalised is 35800+900+410 = 37,110.
2. Basket purchase,
   1. Eventhough the fair market value of the assets is more than the cost of purchase only cost incurred to be considered as the actual cost to be capitalised,
   2. Therefore 53,800 should be capitalised.
3. Land and building,
   1. All the costs incurred to bring the asset into useful condition will be considered for calculating cost,
   2. Therefore 83,900+5490+1440+9600+224000 = 324,430.