kegler bowling buys scorekeeping equipment with an invoice cost of $160,000. the electrical work required…
kegler bowling buys scorekeeping equipment with an invoice cost of $160,000. the electrical work required for the installation costs $16,800. additional costs are $3,360 for delivery and $11,530 for sales tax. during the installation, the equipment was damaged and the cost of repair was $1,550. required: indicate whether each cost should be included in the cost of the equipment or excluded and expensed as incurred.
Answer
Explanation:
Step1: Determine invoice cost
The invoice cost is the purchase - price of the equipment and is a necessary cost to acquire the asset, so it is included.
Step2: Determine installation electrical work cost
The electrical work for installation is a cost directly related to getting the equipment ready for use, so it is included.
Step3: Determine delivery cost
Delivery costs are necessary to transport the equipment to its place of use, so it is included.
Step4: Determine sales tax cost
Sales tax is a cost incurred in the acquisition of the equipment, so it is included.
Step5: Determine repair cost
The repair cost during installation is not a cost that is necessary to get the equipment in its intended condition for use. It is an abnormal cost and should be expensed as incurred, so it is excluded.
Step6: Calculate total recorded cost
Add the included costs: $160000 + 16800+3360 + 11530=$191690$
Answer:
| Costs | Amount | Included or Excluded | Account |
|---|---|---|---|
| Invoice cost | $160,000 | Included | Equipment |
| Electrical work required for installation | $16,800 | Included | Equipment |
| Delivery costs | $3,360 | Included | Equipment |
| Sales tax | $11,530 | Included | Equipment |
| Repair costs | $1,550 | Excluded | Repairs Expense |
| Total recorded cost | $191,690 | - | - |