On August 1, 2010, Danube Corporation purchased a new machine on a deferred payment basis.A down payment of $2,000 was made and four monthly instalments of $3,000 each are to be made beginning on September 1, 2010.The cash equivalent price of the machine was $12,000.Danube incurred and paid installation costs amounting to
$1,000.The amount to be capitalized as the cost of the machine is
A)$13,000
B)$3,000
C)$12,000
D)$14,000

Question

Quizplus · Accepted Answer

The cost of the machine should include the cash equivalent price ($12,000) plus any additional costs necessary to make the machine ready for its intended use, which in this case includes the down payment ($2,000) and installation costs ($1,000). Therefore, the total cost to be capitalized is $12,000 + $2,000 + $1,000 = $15,000. However, since only $12,000 of this amount is deferred, the remaining $3,000 should be recognized immediately as an expense, leaving a net capitalized cost of $12,000. Therefore, the answer is A.

On August 1, 2010, Danube Corporation Purchased a New Machine