On January 2, 2020, Holliwell Inc. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler.......................................$\$ 36,000$
Carrying amount of old boiler.......................................4,000
Fair value of old boiler.................................................2,400
Installation cost of new boiler......................................3,200

The old boiler was sold for $ 2,400. At what amount should Holliwell capitalize the cost of the new boiler?
A) $ 42,300
B) $ 43,200
C) $ 39,200
D) $ 40,000

Question

On January 2, 2020, Holliwell Inc. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler.......................................$\$ 36,000$
Carrying amount of old boiler.......................................4,000
Fair value of old boiler.................................................2,400
Installation cost of new boiler......................................3,200

The old boiler was sold for $ 2,400. At what amount should Holliwell capitalize the cost of the new boiler?
A) $ 42,300
B) $ 43,200
C) $ 39,200
D) $ 40,000

Quizplus · Accepted Answer

The cost of the new boiler that should be capitalized includes the purchase price of $36,000 and the installation cost of $3,200, for a total of $39,200. The carrying amount of the old boiler and the fair value of the old boiler are irrelevant to the cost of the new boiler. Therefore, the correct answer is C) $39,200.

On January 2, 2020, Holliwell Inc $36,000\$ 36,000$36,000 Carrying Amount of Old Boiler

On January 2, 2020, Holliwell Inc $\$ 36,000$ Carrying Amount of Old Boiler