On August 1, 2020, Burkina Corp. purchases a new machine. The company makes a $ 2,000 cash down payment, and agrees to pay four annual instalments of $ 3,000 each, starting August 1, 2021, signing a non-interest bearing-note to this effect. The cash equivalent price of the machine is $ 12,500. Due to an employee strike, Burkina could not install the machine immediately, and thus incurred $ 300 of storage costs. As well, Burkina pays installation costs of $ 400. The recorded cost of the machine should be

Question

Quizplus · Accepted Answer

The recorded cost of the machine should include the cash equivalent price of $12,500, plus the additional costs directly attributable to bringing the asset to its working condition, which are the storage costs of $300 and installation costs of $400. Therefore, the total recorded cost is $12,500 + $300 + $400 = $13,200. However, the initial down payment of $2,000 is part of the cash equivalent price, so the correct calculation should actually be $12,500 (cash equivalent price, already including the down payment) + $300 (storage costs) + $400 (installation costs) = $13,200. My initial explanation contained a mistake in interpreting the down payment's role in the total cost calculation. The correct total cost should be the cash equivalent price plus the additional costs, which indeed totals $13,200, making the correct choice B, not C as initially stated.