Anchor Company purchased a manufacturing machine with a list price of $96,000 and received a 2% cash discount on the purchase. The machine was delivered under terms Free On Board shipping point, and freight costs amounted to $4,400. Anchor paid $6,300 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $8,200 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:

Question

Quizplus · Accepted Answer

The cost recorded in the asset account includes the purchase price after discount, freight costs, and installation and testing costs. The purchase price after a 2% discount is $96,000 - ($96,000 * 0.02) = $96,000 - $1,920 = $94,080. Adding the freight costs of $4,400 and installation costs of $6,300 gives a total of $94,080 + $4,400 + $6,300 = $104,780. Insurance costs are not capitalized as part of the asset cost.

Anchor Company Purchased a Manufacturing Machine with a List Price